<PAGE>
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ---------------

                                    FORM 10-K

[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act
                                    of 1934

                   For the fiscal year ended December 31, 2002

[ ] Transition Report under 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.
                               ------------------
                 (Name of small business issuer in its charter)

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


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

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

                                 ---------------

         Securities registered under Section 12(b) of the Exchange Act:
                                      None

         Securities registered under Section 12(g) of the Exchange Act:
                          Common Stock, $.01 par value
                         Preferred Stock Purchase Right

         Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the 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
                                                                  ---     ---

         Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.                                        [ ]

         Indicate by check mark whether the registrant is an accelerated filer
(as described in Rule 12b-2 of the Act).                       Yes      No X
                                                                  ---     ---

         The aggregate market value of the Registrant's Common Stock held by
non-affiliates, computed by reference to the close price of such stock, as of
June 28, 2002, was $14,717,017.

         As of March 14, 2003, the Registrant's had 3,651,501 shares of Common
Stock issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         None.



<PAGE>



                                      INDEX


<TABLE>
<CAPTION>

PART I                                                                                                         Page

<S>           <C>                                                                                              <C>
 Item 1.      Description of Business                                                                             3

 Item 2.      Description of Property                                                                             9

 Item 3.      Legal Proceedings                                                                                  10

 Item 4.      Submission of Matters to a Vote of Security Holders                                                10

PART II

 Item 5.      Market for the Company's Common Stock and Related Stockholder Matters                              11

 Item 6.      Selected Financial Data                                                                            11

 Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations              12

 Item 7A.     Quantitative and Qualitative Disclosure about Market Risk                                          21

 Item 8.      Financial Statements and Supplementary Data                                                        21

 Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure               21

PART III

 Item 10.     Directors and Executive Officers of the Company                                                    22

 Item 11.     Executive Compensation                                                                             24

 Item 12.     Security Ownership of Certain Beneficial Owners and Management                                     27

 Item 13.     Certain Relationships and Related Transactions                                                     28

 Item 14.     Disclosure Controls and Procedures                                                                 28

PART IV

 Item 15.     Exhibits and Reports on Form 8-K                                                                   29

SIGNATURES                                                                                                       31

RULE 13a-14 CERTIFICATIONS                                                                                       32

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA                                                              34
</TABLE>

<PAGE>



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 increases in sales, adding product lines, adding
new license properties, gross margin trends, operating cost trends, the
Company's expectations as to funding its capital expenditures and operations
during 2003, the Company's ability to renew expiring license agreements,
expectations as to acquisitions 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 risk factors listed
in Part I, Item 1 and Part II, Item 7 and as listed from time to time in the
Company's filings with the Securities and Exchange Commission.



                                                           PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

         Fotoball USA, Inc., a Delaware corporation (the "Company"),
manufactures and markets souvenir and promotional products. Four separate sales
groups sell the Company's products and services into distinct markets. Fotoball
Sports services national and regional retailers; Fotoball Entertainment
Marketing services entertainment destinations such as theme parks, resorts,
restaurants and casinos; Fotoball Sports Team supports the retail needs of
professional sports franchises and concessionaires across the nation; and
Marketing Headquarters develops custom promotional programs for Fortune 500
companies. The Company currently holds licenses with Major League Baseball
("MLB"), the National Football League ("NFL"), the National Hockey League
("NHL"), the National Basketball Association ("NBA"), over a hundred National
Collegiate Athletic Association ("NCAA") colleges and universities, Warner Bros.
"Scooby Doo," Marvel's "Spider-Man," "Incredible Hulk" and "X-Men,"
Nickelodeon's "Blue's Clues," Mattel's "Barbie" and The Coca-Cola Company.

         The Company sells similar types of products to four different types of
customers: retail, entertainment, team and promotions. The Company employs
creative design and product development personnel to design and develop the
Company's products. In general, the Company's retail, team and promotions sales
are products sold under various license agreements. The majority of the
Company's entertainment sales and a portion of the promotions sales are not
subject to license agreements and therefore do not have associated royalty
expense. The Company is restricted by its licensing agreements as to the type of
products, territory and in some cases, type of customer it can sell under each
license. The Company sells a wider variety of products when not subject to a
licensing agreement.

         The Company's retail sales represents a customer base of national,
regional and local retailers, including selected department stores and mass
merchants (such as Target, Wal-Mart, Toys "R" Us and Sears), airport
concessionaires, various licensed sports specialty and sporting goods chains
(such as The Sports Authority, Gart Sports Company, Champs, Modell's Sporting
Goods and Dick's Sporting Goods) and various consumer catalogs.

         The Company's team sales customers include professional sports team
stores and stadium concessionaires (such as Aramark and Volume Services) from
the NFL, MLB, Minor League Baseball, the NHL, the NBA and the Arena Football
League ("AFL").

         The Company's entertainment sales customers include entertainment
related companies with retail sales operations such as The Walt Disney Company,
Universal Studios, Six Flags and Busch



                                       3

<PAGE>

Gardens theme parks, QVC, Home Shopping Network, Sports Illustrated, Dave and
Buster's and Hard Rock Cafe.

         The Company's Marketing Headquarters promotion customers include
national companies such as Kraft, General Mills, Bank of America, McDonalds and
Carl's Jr., which companies purchase the Company's products for use in
promotional campaigns and in connection with their sponsorship of sports teams
and leagues.

         Fotoball USA, Inc., a California corporation and the predecessor to the
Company ("Fotoball California"), was incorporated under the laws of the State of
California on December 13, 1988. The Company then was incorporated under the
laws of the State of Delaware on April 27, 1994, for the purpose of merging and
continuing the business of Fotoball California. On July 29, 1994, Fotoball
California merged with and into the Company, with Fotoball USA, Inc. being the
surviving corporation.

PRODUCTS

         The Company offers a variety of custom-imprinted sports and non-sports
products across a broad range of price points. The Company currently markets
over 500 custom-imprinted sports and non-sports related products with general
wholesale prices ranging from approximately $1.00 to $19.95 per item. The
following is a description of each of the Company's main product lines:

    Baseball:

         The Company uses a synthetic leather, official size and weight
baseball, as well as a synthetic leather, composite core jumbo baseball, on
which it prints or embosses various images. The baseball product line includes
baseballs featuring a player's image and statistics, embroidered baseballs, logo
team baseballs featuring logos of MLB and minor league baseball teams
(collectively "Professional Baseball"), mini-glove and baseball gift sets,
specialty baseballs including glow in the dark baseballs, medallion logo
baseballs and Softee(R) soft vinyl polyester filled baseballs licensed by
Professional Baseball, colleges and universities and several entertainment
properties and promotional baseballs custom-printed and used for promotions.

    Football:

         The Company uses a synthetic leather football in a variety of sizes and
finishes. The football product line includes Teamball TM and the NFL Player
Fotoball(R), mini-footballs featuring NFL team logos and full color images of
NFL players, official size footballs and Sofgrip(TM) footballs featuring
university or college logos, NFL souvenir official size footballs featuring team
and Super Bowl logos and NFL marks produced in limited edition,
performance/official size footballs featuring color images for specialty
retailers such as The Walt Disney Company and promotional full-size, Sofgrip(TM)
and miniature footballs custom-printed and used for promotions.

    Basketball:

         The Company uses a basketball with a high-grade synthetic leather
finish on six panels and white synthetic leather on two panels for its official
size and miniature basketballs. The Company uses an official size basketball
constructed of vulcanized rubber and an official size basketball constructed of
synthetic leather for its brand licensed and college product line. The
basketball product line includes University Teamball(R) made from synthetic
leather, both full and youth-size vulcanized rubber basketballs featuring a
full-color image of a university or college logo and nickname, NBA team logo
ball featuring full-color logos of several NBA teams sold to individual teams
for exclusive sale by the respective team within the arena, basketball hoop sets
with backboards featuring college logos combined with a mini-basketball,
performance/official size basketballs featuring full-color images for specialty
retailers and promotional basketballs in all sizes made primarily from
vulcanized rubber featuring graphic designs of team, college or corporate logos
for promotions.

    Soccer Ball:

         The Company uses a 16-inch, 12-panel machine stitched synthetic leather
soccer ball for its



                                       4

<PAGE>

miniature soccer balls. The Company uses an official size 5 machine stitched
soccer ball for its brand-licensed products. The soccer product line includes
size 3 and performance/size 5 soccer ball featuring color images for specialty
retailers and promotional soccer balls custom-printed and used for promotions.

    Hockey Puck:

          The Company uses a hockey puck that is officially licensed with the
NHL. The hockey product line includes team puck featuring NHL team logos on a
brass medallion that adheres to the puck, player images and player facsimile
autographs on pucks packaged in a mini-net or with a stand.

    Lapel Pin:

          The Company produces a variety of lapel pin styles including
cloisonne, die struck, brass etched and steel for the licensed product retail
market, for corporate promotions and to brand licensed retail customers. The
lapel pin product line includes customized lapel pins for entertainment
customers, NCAA lapel pins for the NCAA championship series and the Final
Four(TM) tournament licensed by the NCAA and promotional pins custom
manufactured and used for corporate promotions and programs.

    Playground Ball:

         The Company uses a soft vulcanized rubber ball in various sizes for its
entertainment-related licensed products such as for Warner Bros. "Scooby Doo,"
Nickelodeon's "Blue's Clues" and Marvel Entertainment's "Spider-Man,"
"Incredible Hulk" and "X-Men" characters. The Company uses an 8-inch playground
ball for its MLB team logo playground ball featuring all MLB teams, as well as
for its NFL team logo playground ball featuring all NFL teams.

    Softee(R)Sports Products:

         The Company uses polyester-filled soft vinyl for its Softee(R) sport
balls. The Softee(R) product line includes a miniature bat and baseball set with
MLB and entertainment property logos, a Teamball(R) basketball featuring college
and minor league team logos and promotional miniature footballs and baseballs
custom-printed and used for promotions.

    Bobblehead:

         The Company offers a hard polymer doll figure with a moveable head in
sizes ranging from 3-inches to 7-inches high. The Company's 4-inch high dolls
are marketed under the brand Lil Bobbers(TM). The Company also offers a version
of the bobblehead doll under the brand Pencil Bobbers(TM) that can be attached
to the end of a pen or pencil. The bobblehead line features sports and
entertainment figures. The bobbleheads are currently being sold to promotions
and retail customers.

    Plastic Souvenir Helmets:

         The Company offers a line of souvenir baseball cap style helmets made
of injection molded plastic in full size for wear, and mini concession size to
be used as food containers. The souvenir helmets are currently sold under the
Company's MLB license to team and retail and promotions customers.

PRODUCT WARRANTIES

         In general, the Company does not offer warranties for its products. The
Company does warrant to certain promotional customers that its products comply
with various consumer product safety laws, are of merchantable quality and are
safe for their intended use. A high rate of defective or broken products may
adversely affect the Company's image and sales performance in the marketplace,
as well as the overall operating results of the Company.

LICENSE AGREEMENTS

         More than 50% of the Company's sales are 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 MLB,
the NFL, various NCAA colleges and universities and, to a lesser extent, other
licensors including the NBA, the NHL, The Coca-Cola Company, Warner Bros.
"Scooby-



                                       5


<PAGE>

Doo," MTV Networks' (Nickelodeon) "Blue's Clues" characters, Mattel's "Barbie"
and Marvel Entertainment's "Spider-Man," "Incredible Hulk" and "X-Men"
characters. 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. The following is a brief
description of the Company's material license arrangements with its licensors:

         The Company was granted by National Football League Properties, Inc.
("NFLP") the non-exclusive right to utilize in the United States and Canada, the
names, symbols, designs and colors of the following: "National Football League,"
"NFL," "NFC," "AFC," "Super Bowl," "Pro Bowl," the Member Clubs of the NFL
(including the helmet designs, uniforms, team names, nicknames, identifying
slogans and logos and other member club indicia) (the "Team" license) and player
names, likeness, portraits, pictures, photographs, signatures and biographical
information. The terms of the licenses extend through March 31, 2003. The
Company is obligated to pay a royalty based on net sales of licensed products
subject to an annual minimum royalty fee. The Company anticipates that it will
renew its license with NFLP, but there can be no assurance that the Company will
be able to renew its license agreement with the NFLP upon acceptable terms at
its expiration.

         The Company was granted by the Major League Baseball Players
Association ("MLBPA") the non-exclusive right to utilize in the United States,
its territories and Canada the "MLBPA" and "Major League Baseball Players
Association" trade names, the MLBPA logo and the names, nicknames, likeness,
signatures, pictures, playing records and/or biographical data of all active
baseball players of the National League and the American League who have entered
into commercial agreements with the MLBPA. The term of the license extends
through December 31, 2003 with two renewal periods at the Company's option from
January 1, 2004 to December 31, 2004 and from January 1, 2005 to December 31,
2005. The Company is obligated to pay a royalty based on net sales of licensed
products, subject to an annual minimum royalty fee. There can be no assurance
that the Company will be able to renew its license agreement with the MLBPA upon
acceptable terms at its expiration.

         The Company was granted by Major League Baseball Properties, Inc.
("MLBP") the non-exclusive right to utilize in the United States the names,
symbols, logos and other similar or related identification of "MLBP." The term
of the license extends through December 31, 2003. The Company is obligated to
pay a royalty based on net sales of licensed products, subject to an annual
minimum royalty fee. There can be no assurance that the Company will be able to
renew its license agreement with the MLBP upon acceptable terms.

         The Company maintains licenses with various colleges and universities
to use their names and logos on the Company's products. The Company was granted
a license by The Collegiate Licensing Company and the Licensing Resource Group,
both of which provide the licensing rights to several colleges and universities.
In addition, the Company has individual licenses with several colleges and
universities. No single college or university license represents a material
portion of the Company's license sales business. However, taken as a whole, all
of the college and university license sales are a material portion of the
Company's license sales business. There can be no assurance that the Company
will be able to renew all of its various college and university license
agreements upon acceptable terms at their expirations.

         In December 2000, the Company entered into a five-year license
agreement, beginning January 1, 2001, with two five-year renewal terms, with
Rawlings Sporting Goods Company Inc. ("Rawlings") for the exclusive global
rights to sell golf clubs and golf related merchandise under the Rawlings brand
name. The Company paid a one-time licensing fee of $500,000, and was obligated
to pay a royalty based on net sales of licensed products, subject to an annual
minimum royalty fee. The Company gave Rawlings a termination notice in November
2001 and paid a final minimum royalty fee of $100,000 in four equal installments
of $25,000 during 2002.



                                       6
<PAGE>

         Historically, the Company's material licenses have been renewed by its
licensors. Although the Company believes it will be able to renew its licenses
upon their expiration, there can be no assurance that such renewal can be
obtained on terms acceptable to the Company. The inability of the Company to
renew existing licenses and/or acquire additional licenses could have a material
adverse effect on the Company's sales and earnings.

GROSS MARGINS

         The Company realized gross margins of 37% for the year ended December
31, 2002, an increase from 36% and 35% during the years ended December 31, 2001
and 2000, respectively. The Company's gross margins may fluctuate, based in part
on the concentration of promotion, retail sales, sales direct to licensors and
product mix during the reporting period. The types of products sold, the size of
the promotion and the extent of competition also may create variability in
realized gross margins. The Company currently relies on various types of retail
customers for most of its revenue. The mass merchant retail business and
promotion business 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 and operating results.

SEASONALITY

         The Company has historically experienced significant quarter-to-quarter
variability in its sales and net income resulting primarily from its sports
license sales focused on the fall and winter, the retail industry's holiday
shopping season and the timing of various large promotions. The Company has
successfully grown its various retail distribution channels to help mitigate the
variability caused by the promotions business. However, as the Company continues
to attempt to grow its promotions business, the potential for significant
quarter-to-quarter variability in revenue still exists as the Company produces
larger and larger promotions.

SALES CONCENTRATION

         The Walt Disney Company, accounted for approximately 18%, 26% and 20%
of total sales in 2002, 2001 and 2000, respectively. Kraft Foods North America
Inc. accounted for 17% of total sales in 2002. No other customer represented
more than 10% of total sales in 2002, 2001 or 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 and Scott P. Dickey,
its President and Chief Operating Officer. Mr. Favish has entered into a
three-year employment agreement with the Company, commencing on August 10, 2002,
which, among other things, precludes Mr. Favish from competing with the Company
for a period of one year following termination of his employment with the
Company. Mr. Dickey has entered into a two-year employment agreement with the
Company, commencing on April 2, 2001. The Company is currently negotiating with
Mr. Dickey to renew his employment agreement and the Company anticipates that it
will be able to negotiate a mutually acceptable renewal. The loss of the
services of Mr. Favish or Mr. Dickey 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 2002, the Company purchased approximately 86% of its raw material
and finished goods, consisting primarily of synthetic baseballs, footballs,
basketballs, hockey pucks and playground balls, from twelve companies located in
China, with five manufacturers accounting for 82% of total raw materials and
finished goods purchased. In both 2001 and 2000, the Company purchased
approximately 88% of its raw materials from six suppliers.



                                       7
<PAGE>

COMPETITION AND TECHNOLOGICAL CHANGE

         The promotion and sports related retail businesses are highly
competitive, diverse and constantly changing. The Company experiences
substantial competition in most of its product categories from a number of
companies, some of which have greater financial resources, marketing and
manufacturing capabilities than the Company. The Company's competitors include:
Rawlings, Franklin Sports Inc. ("Franklin"), Baden Sports Inc. ("Baden"), Wilson
Sporting Goods Co. ("Wilson") Spalding Sports Worldwide, Inc. ("Spalding"),
Hedstrom Corporation ("Hedstrom") and Inglasco Corp. Ltd. ("Inglasco").

         The Company competes primarily on the basis of customer service,
creativity in product design, quality and uniqueness of products, prompt
delivery and a reputation of reliability. The Company believes that it
successfully competes in each of the above areas and that the Company has an
advantage by offering a full range of services from design through distribution.
The future success of the Company is increasingly dependent upon the creativity
of its design team, its ability to reproduce these designs onto sports products
with high quality output and new product development.

         The licensed sports-related product industry differentiates itself from
other industries in that the licensors control the extent of competition among
licensees and typically do not grant exclusive licenses. Generally, licensors
allow vendors to use licensed products under non-exclusive license agreements
and such licensors may license more than one vendor in a particular product
line. Although the Company has been successful in obtaining and renewing such
licenses and in being the sole vendor of certain licensed product lines, there
can be no assurance that other competitors will not obtain competing licenses to
sell the same or similar products in the future. The Company competes directly
with Franklin, Baden, Hedstrom and Wilson in the recreational vulcanized rubber
sports ball business. The Company also competes directly with Rawlings in the
team logo baseball business and for certain promotional baseball programs, as
noted below.

         The domestic promotion business is highly competitive. The Company
competes frequently with the same companies as in its licensed sports product
business, particularly Inglasco, Spalding, Wilson and Rawlings. Additionally, a
variety of companies who outsource sports ball products from China do compete
against the Company for certain promotional orders. However, the Company
believes that its creativity, higher quality and reliable service result in a
competitive advantage. The Company's competitors include companies that have
significantly greater financial and other resources than the Company. There can
be no assurance that the Company will be able to compete effectively against
such companies in the future.

         Within its retail business, the Company competes on the basis of its
quality manufacturing process, its strong relationships with its licensors, its
price point, brand equity of the Fotoball name in the marketplace and its use of
selected distribution channels for retail products. As previously noted, a
significant competitive advantage of the Company is its creative design
capabilities and its ability to reproduce these designs onto high quality
products.

TRADEMARKS, PROPRIETARY INFORMATION AND PATENTS

         Fotoball(R) is a registered trademark of the Company. The Company
believes that Fotoball(R) is the best known brand name for baseballs and other
sports balls with imprinted color images. The Company also uses trademarks, such
as Teamball(R), Fotopuck(R), Dunk This(R) and Heads Up(R), which are registered
with the U.S. Patent and Trademark Office. The Company has applied for
trademarks with the U.S. Patent and Trademark Office for Lil Bobbers and Pencil
Bobbers. The Company considers the Fotoball(R) trademark to be material to its
business.

         The Company is able to successfully reproduce a variety of intricate
designs on its products with detail and accuracy, using the Company's
proprietary printing process. The Company developed this process by combining
several pre-existing techniques that are used in other similar industries. The
Company does not rely upon any material patents or licensed technology in the
operation of its business.



                                       8
<PAGE>

The Company does not believe that it is possible to be issued a patent on its
proprietary printing process and, accordingly, there can be no assurance that
the Company's techniques, processes and formulations will not otherwise become
known to, or independently developed by, competitors of the Company.

         The cost of advancing the technology used in its printing process and
research and development costs associated with designing and creating new
products are presently not considered significant.

GOVERNMENTAL REGULATIONS

         In the United States, the Company is subject to the provisions of,
among other laws, the Federal Hazardous Substances Act and the Federal Consumer
Products Safety Act. These laws empower the Consumer Product Safety Commission
(the "CPSC") to protect consumers from hazardous toys and other articles. The
CPSC has the authority to exclude from the market articles that are found to be
unsafe or hazardous and can require a recall of such products under certain
circumstances. Similar laws exist in some states and cities in the United
States, as well as in Canada and Europe. The Company has established a strong
quality assurance program (including the inspection of goods at the factories,
the retention of independent testing laboratories and the independent testing by
certain licensors of which product must pass certain external safety standards
for their own purposes) to ensure compliance with applicable laws and
regulations. While the Company believes that its products comply in all material
respects with regulatory standards, there can be no assurance that the Company's
products will not be found to violate applicable laws or rules and regulations
which could have a material adverse effect on the business, financial condition
and results of operations of the Company. In addition, there can be no assurance
that more restrictive laws, rules and regulations will not be adopted in the
future, or that the Company's products will not be marketed in the future in
countries with more restrictive laws, rules and regulations, either of which
could make compliance more difficult or expensive and which could have a
material adverse effect on the business, financial condition and results of
operations of the Company.

         The Company is engaged in a business that could result in possible
claims for injury or damage resulting from its products. The Company is not
currently, nor has it been in the past, a defendant in any product liability
lawsuit. The Company currently maintains product liability insurance coverage in
amounts that it believes are adequate. There can be no assurance that the
Company will be able to maintain such coverage or obtain additional coverage on
acceptable terms, or that such insurance will provide adequate coverage against
all potential claims.

         The Company's operations are subject to federal, state and local laws
and regulations relating to the environment, health and safety and other
regulatory matters. Certain processes of the Company's operations may, from time
to time, involve the use of substances that are classified as toxic or hazardous
within the meaning of these laws and regulations. The Company's imprinting
process involves the use of inks, ink thinners and xylene in the cleaning
process of the ball. The Company believes that it has obtained all material
permits and that its operations are in substantial compliance with all material
applicable environmental laws and regulations. Any non-compliance with
environmental laws and regulations is not likely to have a material adverse
effect on the Company under current operations, its results of operations or its
liquidity due primarily to the small quantities used in the processes. The cost
of compliance with environmental laws and regulations are not considered to be
significant at this time.

EMPLOYEES

         As of March 1, 2003, the Company employed 142 persons, all on a
full-time basis, including 6 in executive positions, 17 in sales, 16 in graphic
production, 49 in administrative support positions and 54 in factory production
and shipping. None of the Company's employees are covered by a collective
bargaining agreement. The Company believes its relationship with its employees
is satisfactory.

ITEM 2. DESCRIPTION OF PROPERTY

         The Company's headquarters, decorating and inflate and pack operations
and warehouses are



                                       9
<PAGE>

located in approximately 101,000 square feet of leased space at 6740 Cobra Way,
San Diego, California 92121. The headquarters are leased from an unaffiliated
party under a ten-year lease agreement, which commenced in August 2000 and
expires July 2010 with monthly rent increasing incrementally from $79,498 to
$101,461.

ITEM 3. LEGAL PROCEEDINGS

         None.

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

         The Company did not submit any matters to a vote of security holders
during the fourth quarter of the year ended December 31, 2002.



                                       10
<PAGE>

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         The Company's common stock ("Common Stock") is traded over-the-counter
on the Nasdaq National Market. The following table sets forth the range of trade
prices for the Common Stock during the periods indicated and represents
inter-dealer prices, without retail mark-ups, mark-downs or commissions to the
broker-dealer and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                           Symbol                 High                   Low
                                      ------------------    ------------------    ------------------
<S>      <C>                          <C>                   <C>                   <C>
Common Stock:                         (FUSA)
     2001
         First quarter                                            $ 2.13                $ 1.05
         Second quarter                                           $ 2.75                $ 1.25
         Third quarter                                            $ 3.10                $ 1.51
         Fourth quarter                                           $ 3.60                $ 2.95
     2002
         First quarter                                            $ 4.70                $ 3.01
         Second quarter                                           $ 5.63                $ 4.50
         Third quarter                                            $ 4.90                $ 4.20
         Fourth quarter                                           $ 4.85                $ 3.90
</TABLE>

         On March 14, 2003, there were approximately 82 holders of record of the
Common Stock. Based on information provided by the Company's transfer agent and
registrar, the Company believes that there are approximately 1,379 beneficial
owners of the Common Stock.

         The Company has never paid dividends on the Common Stock and does not
anticipate paying any dividends in the foreseeable future.

ITEM 6.           SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                           Years ended December 31,
                                           ---------------------------------------------------------------------------------------
                                                2002             2001              2000             1999               1998
                                           ---------------- ----------------  ---------------- ----------------   ----------------
<S>                                        <C>              <C>               <C>              <C>                <C>
 Statements of operations
    Net sales                                  $43,995,967      $31,631,931       $26,687,158      $28,690,211        $19,147,728
    Income from continuing operations          $   932,116      $   123,444       $   179,271      $ 2,646,066        $   597,874
    Income from continuing operations
    per common share
       Basic                                   $      0.26      $      0.03       $      0.05      $      0.88        $      0.22
       Diluted                                 $      0.24      $      0.03       $      0.05      $      0.83        $      0.22

<CAPTION>
                                                                             As of December 31,
                                           ---------------------------------------------------------------------------------------
                                                2002             2001              2000             1999               1998
                                           ---------------- ----------------  ---------------- ----------------   ----------------
<S>                                        <C>              <C>               <C>              <C>                <C>
 Balance sheet data
    Total assets                               $16,454,862      $17,000,488       $14,808,886      $13,827,878         $7,894,609
    Total debt                                 $   878,268      $ 1,945,061       $   944,651      $   406,937         $  250,476
    Stockholders' equity                       $11,827,856      $10,821,411       $11,806,523      $11,588,721         $5,888,505
</TABLE>



                                       11
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000:

         The following table sets forth certain operating data (in whole dollars
and as a percentage of the Company's net sales) for the years ended December 31,
2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                         Years ended December 31,
                                            -----------------------------------------------------------------------------------
                                                  2002           %             2001           %             2000           %
                                            ----------------- -------    ----------------  -------   -----------------  -------
<S>                                         <C>               <C>        <C>               <C>       <C>                <C>
Net sales                                       $43,995,967     100          $31,631,931     100        $26,687,158        100
Cost of sales                                    27,713,725      63           20,164,421      64         17,241,579         65
Gross profit                                     16,282,242      37           11,467,510      36          9,445,579         35
Operating expenses                               14,811,786      34           11,310,069      36          9,275,159         35
Income from operations                            1,470,456       3              157,441       1            170,420          1
Interest expense                                    (39,754)     --              (96,036)     --            (32,249)        --
Interest income                                      77,414      --              104,039      --            127,100         --
Income from continuing operations
before income tax                                 1,508,116       3              165,444       1            265,271          1
Income tax expense                                  576,000       1               42,000      --             86,000         --
Income from continuing operations                   932,116       2              123,444      --            179,271          1
Loss on discontinued operations
    net of tax benefit                                   --      --             (484,650)      2                 --         --
Loss on disposal of discontinued
    operations net of tax benefit                        --      --             (629,376)      2                 --         --
                                            -----------------            ----------------            -----------------
Net income (loss)                              $    932,116       2          $  (990,582)     (3)      $    179,271          1
                                            =================            ================            =================
</TABLE>

CRITICAL ACCOUNTING POLICIES

         In response to the SEC's Release Numbers 33-8050 "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 critical accounting policies
that reflect the more significant judgments and estimates used in its financial
statements. On an ongoing basis the Company evaluates its estimates, bases its
estimates on the information that is currently available to and on various other
assumptions that the Company believes to be reasonable under the circumstances.
Actual results could vary from those estimates under different assumptions or
conditions.

         The Company believes the following critical accounting policies reflect
the more significant judgments and estimates used in the preparation of its
financial statements.

         Sales of products domestically are recognized when the products are
shipped from the Company's facility. Sales terms in general are FOB shipping
point and title passes at the time of shipment. Sales of imported products,
which are drop shipped directly to the customer, are recognized at the time
shipments are received at the customer's designated location. There are no
significant rights of return or customer acceptance provisions with respect to
the Company's sales. The Company may from time to time agree to accept returns
from customers as an accommodation. Consignment sales, which are generally not
significant, are recognized when the consignee sells the products.

         In order to determine the value of the Company's accounts receivable,
the Company makes allowances for estimated bad debts based on a variable
percentage applied by credit risk, for other uncollectible amounts including
estimated chargebacks and volume discounts based on type of customer and
applicable customer agreements, and for estimated sales returns based upon
actual return rates. The



                                       12

<PAGE>

Company treats bad debts and other uncollectible amounts as operating expenses
and volume discounts as a reduction of sales. If the credit worthiness or
payment experience of the Company's customers deteriorates significantly, it
could cause the Company to revise its allowance estimates, which could have a
negative impact on the profitability of the Company.

         Effective for its fiscal year beginning January 1, 2002, the Company
adopted new accounting pronouncements that require certain sales incentives,
slotting fees and cooperative advertising expenses to be classified as
reductions of sales rather than as expenses. There is no impact to the Company's
net income (loss) as a result of the adoption of these pronouncements. The
Company estimates cooperative advertising fees as a percentage of sales in
accordance with its various cooperative advertising agreements. If the Company
is required to significantly increase the amount of cooperative advertising to
remain competitive in the marketplace, it could have a negative impact on the
Company's gross margin and overall operating results. The Company believes that,
in general, increases in cooperative advertising allowances will lead to higher
sales and more than offset the negative impact on the gross margins.

         Inventories have been valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. The Company periodically
reviews its inventory to evaluate it for discontinued and obsolete products by
looking at the turnover of each item and identifying slow moving inventory. The
Company applies a realization factor to the slow moving inventory based on
historical dispositions of discontinued and obsolete inventory. Any inventory
items where the cost exceeds the realizable value is provided for in the reserve
for discontinued and obsolete inventory. Additions to the reserve allowance are
charged to costs of sales. The loss from the liquidation or destruction of
obsolete and discontinued inventory is applied against the inventory reserve
allowance. If the Company is unable to reasonably forecast customer demand for
its products, it may cause the Company to write-down larger than usual amounts
of excess inventory that becomes obsolete or discontinued, which would have a
negative impact on the profitability of the Company.

2002 VS. 2001

NET SALES:

DISTRIBUTION CHANNEL                     Years ended December 31,
                              ------------------------------------------------
                                  2002             2001              2000
                                % Sales          % Sales           % Sales
                              -------------    --------------    -------------
Retail                            28%               37%              48%
Entertainment                     27%               36%              31%
Team                              12%               14%              13%
Promotion                         33%               13%               8%

         Sales increased $12.4 million, or 39%, for the year ended December 31,
2002 from sales for the year ended December 31, 2001. Retail sales for 2002
increased by 5% from 2001. The increase was due to an increase in sales to mass
merchant and sporting goods stores offset by a decline in sales to toy
specialty, distributor and department stores. The Company anticipates retail
sales growth in 2003 from mass merchant and sporting goods customers.

         Entertainment sales for 2002 increased 3% from 2001. The increase was
primarily due to increases in sales to restaurant and direct response retail
customers offsetting a decrease in sales to The Walt Disney Company. The Company
anticipates entertainment sales declines in 2003 from The Walt Disney Company
due to the Disney Store's strategic move towards direct sourcing of product and
entertainment sales increases from restaurant and other entertainment
destination customers.

         Team sales for 2002 increased 25% from 2001. The increase was due to
sales increases to MLB and NFL teams and concessionaires. NFL sales were up 325%
for 2002 and had the largest dollar increases in sales compared to 2001. The
Company anticipates increases in team sales in 2003 from a full



                                       13

<PAGE>

season of souvenir helmet sales.

         Promotion sales for 2002 increased 245% from 2001. The increase was due
to promotions in 2002 with Kraft Foods North America and major quick-serve
restaurants. The Company anticipates that its promotions sales will decrease in
2003 compared to 2002 sales.

PRODUCT LINE SALES
                                  2002             2001              2000
                                % Sales          % Sales           % Sales
                              -------------    --------------    -------------
Bobbleheads                       27%               --                --
Football                          19%               28%              33%
Baseball                          13%               21%              20%
Basketball                         7%               9%               13%
Lapel pins                        14%               18%               5%
Playground balls                  12%               13%              13%
Soccer/volleyball                  2%               6%                8%
Helmets                            1%               --                --
Coins                              --               --                5%
Other                              5%               5%                3%
                              -------------    --------------    -------------
Total                             100%             100%              100%
                              =============    ==============    =============

         During 2002, the Company realized product sales increases when compared
to 2001 of playground balls (35%), basketball (12%) and lapel pins (7%). This
growth was offset by declines in the sales of soccer/volleyball (53%), baseballs
(16%) and footballs (6%).

GROSS PROFIT:

         Gross profit increased 42% for the year ended December 31, 2002 from
gross profit for the year ended December 31, 2001. Gross margins as a percentage
of net sales increased to 37% in 2002 from 36% in 2001. The Company's gross
margins as a percentage of net sales increased from 2001 to 2002 due primarily
to higher inventory write-downs in 2001 and higher gross margins on its main
product lines in 2002 offset by a higher proportion of promotional sales in 2002
which typically carry lower gross margins than the Company's retail customer
sales. As previously noted, the Company's gross margins may fluctuate,
particularly between quarters, based on several factors including sales and
product mix (See Part I, Item 1. "Description of Business"). The Company
anticipates that, with its planned product mix and lower raw material costs, it
will be able to sustain gross margin levels in 2003 at or above the 2002 gross
margin level.

OPERATING EXPENSES:

         Total operating expenses increased 31% for the year ended December 31,
2002 from total operating expenses for the year ended December 31, 2001.
Operating expenses as a percentage of net sales decreased to 34% in 2002 from
36% in 2001. Operating expenses increased in absolute dollars due to an increase
in royalty expense and personnel and salary expenses.

         Royalty expense increased 51% for the year ended December 31, 2002 from
royalty expense for the year ended December 31, 2001 due to the increase in
overall sales. Royalty expense, as a percentage of net sales, increased to 8% in
2002 from 7% in 2001. To broaden the Company's scope of product lines and expand
market share, the Company will continue to pursue additional product categories
with existing licensees and new license agreements with various organizations in
the future.

         Marketing expenses increased 37% for the year ended December 31, 2002
from marketing expenses for the year ended December 31, 2001. Marketing expenses
as a percentage of net sales remained at 11% for both years. The increase in
marketing expenses reflects increases in personnel and salary expenses and
outside commission expenses offset by lower advertising expenses, compared to



                                       14

<PAGE>

prior year. The Company anticipates that its marketing expenses, as a percentage
of net sales, will remain constant in 2003 from 2002.

         General and administrative expenses increased 21% for the year ended
December 31, 2002 from general and administrative expenses for the year ended
December 31, 2001. General and administrative expenses as a percentage of net
sales decreased to 14% in 2002 from 16% in 2001. General and administrative
expenses increased in 2002 from 2001 due in part to increases in salary-related
expenses and facilities expense offset by lower bad debt expense. The Company
anticipates that its general and administrative expenses, as a percentage of net
sales, will increase in 2003 from 2002.

OTHER INCOME (EXPENSE):

         Interest expense was $39,754 for the year ended December 31, 2002, a
decrease of $56,282 from interest expense of $96,036 for the year ended December
31, 2001 due to the reduction in the Company's bank debt outstanding in 2002. As
of December 31, 2002 the Company had $0.7 million of bank debt outstanding
versus $1.7 million at December 31, 2001.

         Interest income was $77,414 for the year ended December 31, 2002, a
decrease of $26,625 from interest income of $104,039 for the year ended December
31, 2001. This decrease is due to the lower interest rates in 2002 as compared
to 2001. Excess cash is deposited into an interest-bearing depository account.

INCOME TAX EXPENSE:

         The effective income tax rate on income from continuing operations for
the year ended December 31, 2002 was 38% as compared to 25% for the year ended
December 31, 2001. Income tax benefits recognized during 2001 relate primarily
to the net operating loss generated by the discontinued Rawlings Golf
operations.

2001 VS. 2000

NET SALES:

         Sales increased $4.9 million, or 19%, for the year ended December 31,
2001 from sales for the year ended December 31, 2000. Retail sales for 2001
decreased by 8% from 2000. The decrease was due to a decrease in sales to toy
specialty, distributor and department stores. This decrease was partially offset
by increases in sales to certain mass merchant and sporting goods customers.

         Entertainment sales for 2001 increased 36% from 2000. The increase was
primarily due to a 29% increase in sales to The Walt Disney Company for 2001. A
decrease in 2001 sales to other theme parks was offset by increases in sales to
restaurant and direct response retail customers. The Company has supplied
product for an annual promotion for the Disney Store in 2001 and 2000.

         Team sales for 2001 increased 27% from 2000. The increase was due to
sales increases to all professional league teams and concessionaires except for
the NFL sales, which were down from 2000. MLB and Minor League Baseball sales
were up 30% and 45%, respectively, for 2001 and had the largest dollar increases
in sales compared to 2000.

         Promotion sales for 2001 increased 94% from 2000. The increase was due
to promotions in 2001 with a national auto parts retailer and two different
major quick-serve restaurants. The Company has experienced an increase in both
the number and size of its promotions compared to 2000.

         During 2001, the Company realized product sales increases when compared
to 2000 of lapel pins 324%, baseballs 24% and playground balls 19%. This growth
was offset by declines in the sales of footballs 1%, soccer 14%, basketball 21%
and coins (percentage is not meaningful since sales only occurred in 2000).



                                       15
<PAGE>

GROSS PROFIT:

          Gross profit increased 21% for the year ended December 31, 2001 from
gross profit for the year ended December 31, 2000. Gross margins as a percentage
of net sales increased to 36% in 2001 from 35% in 2000. The Company's gross
margins as a percentage of net sales increased from 2000 to 2001 due primarily
to a differing product mix, including an increase in lapel pin sales from the
prior year, which carried higher than average gross margins when compared to
footballs, baseballs and the other products. The increase in lapel pin and
baseball sales in combination with raw material cost savings was offset by a
$0.6 million increase from 2000 to 2001 in write-downs of discontinued and
obsolete inventory. As previously noted, the Company's gross margins may
fluctuate, particularly between quarters, based on several factors including
sales and product mix (See Part I, Item 1. "Description of Business").

OPERATING EXPENSES:

         Total operating expenses increased 22% for the year ended December 31,
2001 from total operating expenses for the year ended December 31, 2000.
Operating expenses as a percentage of net sales increased to 36% in 2001 from
35% in 2000. Operating expenses increased in absolute dollars due to an increase
in royalty expense, personnel and salary expenses and a full year of facilities
costs for the new building in 2001 versus a partial year in 2000.

         Royalty expense increased 16% for the year ended December 31, 2001 from
royalty expense for the year ended December 31, 2000 due to the increase in
overall sales. Royalty expense, as a percentage of net sales was 7% in both 2001
and 2000.

         Marketing expenses increased 20% for the year ended December 31, 2001
from marketing expenses for the year ended December 31, 2000. Marketing expenses
as a percentage of net sales remained at 11% for both years. The increase in
marketing expense reflects increases in personnel and salary expenses, show
expenses and sample expenses.

         General and administrative expenses increased 31% for the year ended
December 31, 2001 from general and administrative expenses for the year ended
December 31, 2000. General and administrative expenses as a percentage of net
sales increased to 16% in 2001 from 14% in 2000. General and administrative
expenses increased in absolute dollars in 2001 from 2000 due in part to
increases in salary-related expenses, bad debt expense and facilities expense
based on a full year of occupation in the current facilities in 2001 versus six
months in 2000.

OTHER INCOME (EXPENSE):

         Interest expense was $96,036 for the year ended December 31, 2001, an
increase of $63,787 from interest expense of $32,249 for the year ended December
31, 2000. The increase was primarily due an increase in the Company's term debt
including a $0.4 million term loan in December 2000 and $1.5 million term loan
in March 2001. As of December 31, 2001 and December 31, 2000, there were no
borrowings under the credit line.

         Interest income was $104,039 for the year ended December 31, 2001, a
decrease of $23,061 from interest income of $127,100 for the year ended December
31, 2000. This decrease is due to the Company's lower average cash balances
available for investment and lower interest rates in 2001 as compared to 2000.
Excess cash was deposited into an interest-bearing depository account.

INCOME TAX EXPENSE:

         The effective income tax rate on income from continuing operations for
the year ended December 31, 2001 was 25% as compared to 32% for the year ended
December 31, 2000. Income tax benefits recognized during 2001 relate primarily
to the net operating loss generated by the discontinued Rawlings Golf
operations.



                                       16
<PAGE>

DISCONTINUED OPERATIONS

        In December 2000, the Company entered into an agreement with Rawlings
for the exclusive global rights to sell golf clubs and golf related merchandise
under the Rawlings brand name beginning January 1, 2001. In January 2001, the
Company established a new Rawlings Golf division to design, develop, manufacture
and market golf products under the Rawlings brand name. On November 13, 2001,
the Company made the decision to terminate its license with Rawlings and
discontinue its Rawlings Golf operations. Revenue and expenses incurred from
January 2001 to November 13, 2001 have been included in the loss on discontinued
operations, net of a tax benefit of $245,000. The majority of this loss was the
result of sales and marketing costs and travel costs incurred to launch this
division. Loss on disposal of discontinued operations includes costs from the
termination of the licensing agreement with Rawlings, including the write-off of
the remaining unamortized global rights fees, unamortized minimum royalties,
inventory, interest costs and terminal rights fees.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's net working capital increased to $10.7 million at
December 31, 2002 from $9.9 million at December 31, 2001.

         Cash flows provided by operations decreased $1.4 million in 2002 from
cash provided by operations in 2001. This decrease was primarily the result of a
decrease in customer deposits and an increase in inventories partially offset by
decreases in prepaid expenses and an increase in accounts payable and accrued
expenses. The decrease in customer deposits resulted from a down payment at the
end of 2001 for a large promotion project that was completed in the first half
of 2002. Inventory increased in 2002 due to the Company purchasing more
inventory at the end of 2002 due to the uncertainty over the West Coast dock
labor situation that existed at the end of 2002. Since the end of 2002 the West
Coast dock labor situation has been resolved. Accounts payable and accrued
expenses increased in 2002 due to higher inventory payables and higher bonus
accruals.

         Days sales outstanding, calculated in 2002 on a annual basis, improved
29% over 2001 due to the higher proportion of promotional sales in 2002 carrying
more favorable payment terms than retail customer sales. Inventory turns,
calculated on an annual basis, improved 38% over 2001.

         Cash and equivalents were $5.2 million at December 31, 2002, a decrease
of $0.6 million from $5.8 million of cash and equivalents at December 31, 2001.
This decrease in cash was primarily due to the repayment of bank debt in 2002.

         The Company's credit line with U.S. Bank National Association ("US
Bank") expired on May 15, 2002. There were no outstanding borrowings under the
US Bank credit line when it expired. The Company obtained a new credit line from
Comerica Bank-California ("Comerica") on June 24, 2002. The Comerica credit line
is limited to the lesser of $5 million or 80% of eligible accounts receivable,
as defined in the loan agreement, and carries interest at the rate of the
Comerica prime rate (4.25% as of December 31, 2002) plus 0.5%. The credit line
contains a special sublimit of $1.2 million that is reduced by $0.3 million on
each anniversary of the loan agreement. On June 26, 2002, the Company borrowed
$1 million under the special sublimit to refinance the outstanding balance on
its $1.5 million term loan with US Bank. The Company's assets collateralize the
Comerica credit line. The loan agreement contains financial covenants applicable
to the credit line requiring the Company to maintain a minimum current ratio of
2 to 1, a minimum quick ratio of 1.25 to 1, a maximum debt to worth ratio of 1
to 1, net income of more than $100,000 on a rolling six month basis and a
minimum earnings before interest and taxes to interest expense ratio of 2 to 1.
For purposes of calculating the financial covenant ratios, "current liabilities"
include amounts outstanding under the credit line except for the special
sublimit. The credit line matures on December 24, 2004. On June 27, 2002, the
Company paid off the $0.3 million outstanding on its $0.4 million term loan with
US Bank. The Company is in compliance with the covenants as of December 31,
2002. At December 31, 2002, $0.67 million under the special sublimit was the
only outstanding borrowings.



                                       17
<PAGE>

         For the next twelve months, the Company anticipates that its capital
expenditure requirements will approximate $0.9 million, which will be used to
upgrade accounting and manufacturing systems, purchase additional computer
systems and product molds.

         The following table summarizes future minimum contractual obligations
of the Company:

<TABLE>
<CAPTION>
                                                             Payments due by period
                              --------------------------------------------------------------------------------------

                                                   Less than     ---------------  ---------------   ---------------
                                    Total            1 year        1-3 years        4-5 years       After 5 years
                              ---------------  ----------------  ---------------  ---------------   ---------------
<S>                           <C>              <C>               <C>              <C>               <C>
     Line of Credit (1)        $    669,397    $          --      $    669,397      $        --        $       --
     Capital leases                 239,089           89,166           144,762            5,161                --
     Operating leases             8,542,617        1,012,597         3,157,975        2,231,692         2,140,353
     Royalties                    1,135,000          697,500           437,500               --                --
                              ---------------  ----------------  ---------------- ----------------  ----------------
     Total contractual
     cash obligations           $10,586,103      $ 1,799,263      $  4,409,634      $ 2,236,853        $2,140,353
                              ===============  ================  ================ ================  ================
</TABLE>

         (1) Principal payments only. Subject to financial covenants noted
above.

         The Company has recently been able to fund its continuing operations
from cash flow from operations. The nature of the promotions business leads to
large individual orders that require the up-front purchase of large amounts of
inventory. The Company has successfully negotiated payment terms with its
promotions customers allowing for deposits to help fund the cost of inventory.
There can be no guarantee that the Company will be able to continue negotiating
deposits with its promotions customers. In addition, significant increases in
retail sales may require the purchase of additional inventory to meet the short
turn-around times required by large retail customers. The Company's line of
credit requires it maintain net income of more than $100,000 on a rolling six
month basis. The Company must achieve net income of at least $75,000 in the
first quarter of 2003 to stay in compliance with this covenant. If the Company
fails to stay in compliance with his covenant, it may not be able to negotiate a
waiver from Comerica thereby requiring repayment of the total amount outstanding
on its line of credit and potentially impacting its ability to fund its future
working capital requirements or it may be able to negotiate a waiver but
experience an increase in the cost of its debt financing.

         Management believes that if the Company is able to stay in compliance
with the net income covenant on its line of credit or negotiate a waiver of such
covenant, its 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 2003.


RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 143, "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets (SFAS 143)."
SFAS 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. It also applies to certain legal obligations associated with
the retirement of long-lived assets. SFAS 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. This Statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company plans to
adopt the provisions of SFAS 143 beginning January 1, 2003 and does not expect
it will have a material impact on the results of operations or financial
position.

         In April 2002 the FASB issued Statement of Financial Accounting
Standards No. 145 (SFAS No. 145), "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections." This
statement updates, clarifies and simplifies existing accounting



                                       18
<PAGE>

pronouncements including: rescinding SFAS No. 4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect and
amending SFAS No. 13 to require that certain lease modifications that have
economic effects similar to sale lease-back transactions be accounted for in the
same manner as sale lease-back transactions. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002 with early adoption of the provisions
related to the rescission of SFAS No. 4 encouraged. The Company plans to adopt
the provisions of SFAS 145 beginning January 1, 2003 and does not anticipate
that it will have a material effect on the results of operations or financial
position.

         In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 (SFAS No. 146), "Accounting for Costs Associated with Exit or
Disposal Activities," which addresses accounting for restructuring and similar
costs. SFAS No. 146 supersedes previous accounting guidance, principally
Emerging Issues Task Force Issue No. 94-3. SFAS No. 146 requires that the
liability for costs associated with an exit or disposal activity be recognized
when the liability is incurred. Under Issue 94-3, a liability for an exit cost
was recognized at the date of the Company's commitment to an exit plan. SFAS No.
146 also establishes that the liability should initially be measured and
recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of
recognizing any future restructuring costs as well as the amounts recognized.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002. The Company will adopt the provisions of SFAS No. 146
on January 1, 2003. The Company does not anticipate that the adoption of SFAS
No. 146 will have a material effect on the results of operations or financial
position.

         In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 provides expanded
accounting guidance surrounding liability recognition and disclosure
requirements related to guarantees, as defined by this interpretation. The
disclosure requirements of this interpretation are effective for interim or
annual periods ending after December 15, 2002. The recognition and measurment
provisions of this interpretation are applicable on a prospective basis only to
guarantees issued or modified after December 31, 2002. The Company adopted the
disclosure provisions of FIN 45 during the quarter ended December 31, 2002. In
the ordinary course of business, the Company is not subject to potential
obligations under guarantees that fall within the scope FIN 45.

         On January 17, 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities." Variable interest entities
include such entities often referred to as structured finance or special purpose
entities. FIN 46 expands upon and strengthens existing accounting guidance that
addresses when a company should include in its financial statements the assets,
liabilities and activities of another entity. A variable interest entity is a
corporation, partnership, trust, or any other legal structure used for business
purposes that either does not have equity investors with voting rights or has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. FIN 46 requires a variable interest entity to
be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or is entitled to
receive a majority of the entity's residual returns or both. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003. The consolidation requirements apply to older entities
in the first fiscal year or interim period beginning after June 15, 2003. FIN 46
will also affect leasing transactions where the lessor is a variable interest
entity. Disclosure requirements apply to any financial statements issued after
January 31, 2003. The Company does not believe that the adoption of this
accounting pronouncement will have a material impact on the Company's financial
statements and related disclosures.


2003 OUTLOOK

         The Company is seeking to generate growth both internally and
externally during 2003. The Company anticipates increases in retail and team
sales in 2003, based on continued product line expansion and increased licensing
rights with the professional leagues. The Company anticipates a



                                       19

<PAGE>

decrease in entertainment sales due to a decline in sales to the Disney Stores
and lower promotional sales in 2003 due to the magnitude of the one-time $7
million Post Cereal promotion from the spring of 2002. Due to the size and
timing of individual promotions, the Company may experience significant
quarterly fluctuations in promotion sales. The Company intends to seek to
enhance its internal growth opportunities by exploring acquisitions of
established souvenir and sporting goods products that will provide opportunities
to expand the Company's product lines, leverage the Company's relationships with
its licensors and increase promotional opportunities.

         In an effort to pursue growth through acquisitions in 2003, the Company
has incurred, and anticipates that it will continue to incur,
acquisition-related expenses that will only be capitalizable if it is successful
in such acquisitions. If the Company is unsuccessful in its acquisition
attempts, any acquisition-related expenses will be expensed in the quarter in
which it is determined that it is reasonably likely the acquisition will not
occur. The result of the expensing of any acquisition-related expenses may have
a material adverse impact on the Company's profitability in the quarter in which
they are expensed and may likely have a material adverse impact on the Company's
profitability in 2003.

         With its planned product mix and lower promotion sales, the Company
anticipates that it will be able to sustain gross margin levels in 2003 at or
above the 2002 gross margin level.

         There can be no assurance that the Company will be able to successfully
increase its sales or income in 2003. The most important factors that could
prevent the Company from achieving these goals - and cause actual results to
differ materially from those expressed in the forward-looking statements -
include, but are not limited to, the following:

         o    The ability of the Company to maintain its retail division sales
              by maintaining the appeal and desirability of its existing product
              lines and continuing to develop new product offerings.

         o    The impact of increasing competition from other sports product
              licensed companies, including companies that have or may receive
              the same or similar licensing rights as the Company and may have
              substantially greater financial resources than the Company.

         o    The ability to maintain and renew its significant licensing
              arrangements.

         o    The popularity of current or future licensing properties and the
              ability of the Company to leverage these properties to produce
              sales.

         o    The growth in the popularity of licensed sports products.

         o    The effectiveness of the Company's sales staff in expanding the
              breadth of the Company's customer base and significantly
              increasing sales.

         o    The employment and retention of high producing sales staff.

         o    The ability to maintain or increase its overall gross margins or
              the inability to maintain the higher level of gross margins
              realized from its sports related products.

         o    The potential negative impact on operating margins resulting from
              an expansion of the Company's cost infrastructure at a rate that
              exceeds its growth in sales and gross margins.

         o    The ability to expand its customer base, particularly in its
              promotion business, and to decrease its concentration of sales
              among a few significant customers.

         o    The ability to maintain or increase sales with divisions of The
              Walt Disney Company other than the Disney Store.

         o    The ability to source products from Asia at competitive prices
              without delays, increased tariffs, other restrictions or
              unanticipated costs.

         o    The ability to effectively meet customer demands regarding timely
              delivery and order fulfillment without incurring air freight and
              other expedite costs.

         o    The ability of the Company to find available acquisition
              opportunities, to obtain appropriate financing and to consummate
              acquisitions on acceptable terms. There can be no assurance that
              the Company will be able to consummate any acquisition on
              acceptable terms.



                                       20

<PAGE>

         These and other risks and uncertainties affecting the Company are
discussed in greater detail in this report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Company's exposure to market risk relates to interest rate risk
with its variable rate term loans and credit line. The Company does not use
derivative financial instruments to manage or reduce market risk. As of December
31, 2002, the Company's only variable rate debt outstanding was the $0.67
million balance on its line of credit with Comerica used to finance the
discontinued Rawlings Golf operation. A 10% change in future interest rates on
the variable rate term loans would not lead to a material decrease in future
earnings assuming all other factors remained constant.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Reference is made to the Financial Statements referred to in the
accompanying index to Financial Statements and Supplemental Data of Fotoball
USA, Inc., together with the independent auditors' reports.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

          In February 2001, the accounting firm Hollander, Lumer & Co. LLP
("HLC") merged with Good Swartz Brown & Berns LLP ("GSBB") and the partner in
charge of the Company's account, Victor Hollander ("Hollander"), became a
partner of GSBB. As a result of the merger of GSBB and HLC and Hollander
becoming a partner of GSBB, the Company became a client of GSBB. Effective March
26, 2001, HLC resigned as the independent accountant of the Company. Effective
March 26, 2001, the Company engaged GSBB as the Company's new independent
accountants. The Company's Board of Directors approved the retention of GSBB.

         In March 2002, the Company dismissed GSBB as the Company's independent
accountant and engaged KPMG LLP ("KPMG") as the Company's new independent
accountants. The dismissal of GSBB and retention of KPMG were approved by the
Company's Audit Committee. The Company determined that a national accounting
firm will better serve its future auditing needs.

         The reports of HLC and GSBB on the financial statements of the Company
for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle. During the two most recent fiscal years and through March
2002, there were no disagreements between the Company and HLC or GSBB on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of HLC and GSBB, would have caused HLC or GSBB to make reference to
the subject matter thereof in its report on the Company's financial statements
for such periods. During the two most recent fiscal years and through March
2002, there were no "reportable events" (as defined in Item 304(a)(1)(v) of
Regulation S-K).



                                       21
<PAGE>

                                    PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         The following table sets forth certain information as of March 15, 2003
concerning the executive officers and directors of the Company:

<TABLE>
<CAPTION>
NAME                                AGE              POSITION
----                                ---              --------
<S>                                 <C>     <C>
Michael Favish                      54      Chairman, Chief Executive Officer and Director
Nicholas A. Giordano 1,2            60      Director
Joel K. Rubenstein 1,2              66      Director
John J. Shea 1,2                    65      Director
James D. McQuaid                    65      Director
Scott P. Dickey                     36      President, Chief Operating Officer and Director
Thomas R. Hillebrandt               41      Senior Vice President and Chief Financial Officer
Arthur E. McElfresh                 47      Vice President, Sales and Marketing, Retail and Team Business
Karen M. Betro                      52      Vice President, Operations
Steven B. Katzke                    36      Vice President, Entertainment Sales and Marketing
</TABLE>

--------
      1.  Member of compensation committee
      2.  Member of audit committee

         MICHAEL FAVISH has served as a director of the Company since his
founding of the Company in December 1988 and as Chairman and Chief Executive
Officer since April 2001 and as President, Chief Executive Officer and a
director of the Company from March 1994 to April 2001. Mr. Favish has over 28
years of product design, manufacturing and sourcing experience and has
established a number of strategic international sourcing alliances.

         NICHOLAS A. GIORDANO has served as a director of the Company since July
1998. In July 1998, Mr. Giordano was appointed interim President of LaSalle
University for a one-year term. Additionally, from 1971 through August 1997, Mr.
Giordano held various positions at The Philadelphia Stock Exchange, including
from 1981 to 1997 as President and Chief Executive Officer. He also served as
Chairman of the Board of the exchange's two subsidiaries: Stock Clearing
Corporation of Philadelphia and Philadelphia Depository Trust Company. Mr.
Giordano's previous business experience includes serving as Chief Financial
Officer at two brokerage firms (1968-1971) and as a Certified Public Accountant
at Price Waterhouse (1965-1971). Mr. Giordano is currently serving on the Board
of Directors of W.T. Mutual Fund, Kalmar Investment, DaisyTek International, and
Selas Corporation of America, all of which are publicly-held corporations.

         JOEL K. RUBENSTEIN has served as a director of the Company since August
1994. From April 1990 through April 1992 and from March 1994 to present, Mr.
Rubenstein has been a partner of the Contrarian Group, Inc., an operating
management company. In addition, from April 1994 to present, Mr. Rubenstein has
been a principal of Oracle One Partners, Inc., a marketing management company.
From April 1992 through March 1994, Mr. Rubenstein served as the Senior Project
Manager, Business & Economic Development for Rebuild L.A., the recovery
organization created after the Los Angeles riots. Prior to such time, from
January 1985 through April 1990, Mr. Rubenstein served as the Vice President,
Corporate Marketing for Major League Baseball, Office of the Commissioner. Mr.
Rubenstein is currently serving on the Board of Directors of SSP Solutions, a
publicly held corporation.

         JOHN J. SHEA has served as director of the Company since August 1999.
Mr. Shea served as President and Chief Executive Officer of Spiegel, Inc. from
1985 through 1997 and Vice Chairman of Spiegel from 1989 to 1997. Before joining
Spiegel, Mr. Shea worked 21 years at the John Wanamaker



                                       22

<PAGE>

Company, Philadelphia, serving ultimately as Senior Vice President and a member
of the Executive Board. Mr. Shea also served as Chairman of the Board of the
National Retail Federation, the world's largest retail trade association. Mr.
Shea also serves as a member of the Advisory Board of the Kellogg Graduate
School of Management at Northwestern University. Mr. Shea is currently serving,
and has served, as a member of the Board of Directors of Pulte Corporation, a
publicly-held corporation, since January 1995.

         JAMES D. MCQUAID has served as director of the Company since January
2003. In 1997 Mr. McQuaid co-founded MFM Asset Management, a broker/dealer that
was sold to Wunderlick Securities, Inc. in 2001. Mr. McQuaid served as President
of Marketing Electronics Corp. from 1969 until its merger into Metromail Corp.
in 1979. While at Metromail Corp. Mr. McQuaid served as Executive Vice
President from 1979 to 1985, President from 1985 to 1989 and Chairman from 1989
to 1996 and continued to serve as a consultant to Metromail Corp. until 2001.
Metromail Corp. went public in 1984 and was sold to R.R. Donnelley & Sons in
1987. Prior to Marketing Electronics Corp., Mr. McQuaid worked eight years in
various positions for Spiegel, Inc., Montgomery Ward and Consumer Systems Corp.
Mr. McQuaid has also served as a member and Chairman of the Direct Marketing
Association's Board of Directors for 12 years. Currently, Mr. McQuaid serves as
a member of the Northwestern University Cancer Center Development Advisory
Committee.

         SCOTT P. DICKEY has served as a director of the Company since January
2003 and as President and Chief Operating Officer of the Company since April
2001. Prior to joining Fotoball, from July 1999 to December 2000, Mr. Dickey
served as the Chief Operating Officer and Senior Vice President of Business
Development for Sundance, a privately held entertainment organization. From July
1997 through July 1999, Mr. Dickey was Director of Sales and Marketing for
Disney Regional Entertainment, a division of The Walt Disney Company. From
January 1994 to July 1997, Mr. Dickey was the Director and Group Manager of
Marketing and Sales for the National Basketball Association. From August 1991 to
December 1993, Mr. Dickey was the Business Manager of Team Sports for Spalding
Sports Worldwide.

         THOMAS R. HILLEBRANDT has served as Senior Vice President and Chief
Fiancial Officer since June 2001 and as Vice President and Chief Financial
Officer of the Company from July 2000 through May 2001. Prior to joining
Fotoball, from August 1998 through July 2000, Mr. Hillebrandt served as the Vice
President and Chief Financial Officer of ChatSpace, Inc., a privately held
Internet software and services company. From May 1996 through July 1998, Mr.
Hillebrandt was Chief Financial Officer of Link sandiego.com, Inc. and DITR
Marketing, Inc., both privately held Internet service companies. From January
1994 to April 1996, Mr. Hillebrandt was the Chief Financial Officer of Emerald
Systems/St. Bernard Software a privately held PC networks management software
company. From March 1990 to December 1993, Mr. Hillebrandt was the Director of
Finance of Ventura Software, a multinational Xerox subsidiary and from September
1985 to February 1990 he was a CPA with the firm KPMG Peat Marwick.

         ARTHUR E. MCELFRESH has served as Vice President, Sales and Marketing,
Retail and Team Business since December 2002. Prior to joining the Company, Mr.
McElfresh worked as a Senior Account Manager of Cadence Design Systems, a
publicly held supplier of electronic design technologies, from May 2000 to
December 2002. From October 1998 to May 2000, Mr. McElfresh worked as Sales
Business Lead - Supply Chain at Nike, Inc. From January 1993 to October 1998 Mr.
McElfresh served in various sales positions culminating in Category Sales
Manager within the golf division of Nike, Inc. From August 1991 to November
1992, Mr. McElfresh was the National Sales Manager for American Precision, a
privately held custom gear manufacturer. From March 1998 to July 1991 he served
as Equipment Finance Specialist for Perry Morris Corporation, a privately held
equipment financing company. From January 1981 to March 1988 he served in
various positions culminating in General Manager with California Recreational
Services, a privately held company operating commercial recreation facilities.
From May 1977 to November 1980 Mr. McElfresh was a Sales Representative for
Packaging Corporation of America, a subsidiary of Tenneco Company.



                                       23

<PAGE>

         KAREN M. BETRO has served as Vice President, Operations of the Company
since January 1996 and previously served as Controller of the Company from its
organization in December 1988. During this time, Ms. Betro was responsible for
the administration and operation systems of the Company. Ms. Betro has served as
Controller and Administrative Manager of several large corporations, including
Hill & Knowlton.

         STEVEN B. KATZKE has served as Vice President, Entertainment Sales and
Marketing since June 2001, as Vice President, Specialty Sales and Marketing from
January 1998 through May 2001 and as Manager of Retail Sales since January 1993.
From 1989 through 1992, Mr. Katzke was employed as the sales manager of Robert
Katzke and Associates.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and
persons who own beneficially more than ten percent of the Common Stock to file
with the Securities and Exchange Commission initial reports of beneficial
ownership and reports of changes in beneficial ownership of the Common Stock.
Officers, directors and persons owning more than ten percent of the Common Stock
are required to furnish the Company with copies of all such reports. To the
Company's knowledge, based solely on a review of copies of such reports
furnished to the Company, the Company believes that, during fiscal 2002, all
Section 16(a) filing requirements applicable to its officers, directors and
persons owning beneficially more than ten percent of the Common Stock were in
compliance except for a Form 4 for Michael Favish filed in November 2002 and a
Form 3 for Arthur E. McElfresh filed in December 2002, both of which incorrectly
listed stock options granted. Mr. Favish and Mr. McElfresh filed Form 4s in
February 2003 to correct the reporting error.


ITEM 11. EXECUTIVE COMPENSATION

 SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

         The following table shows, for the fiscal years ended December 31,
2002, 2001 and 2000, the compensation paid by the Company, as well as certain
other compensation paid or accrued for those years, to the Company's Chief
Executive Officer and the four other most highly compensated executive officers
of the Company (the "Named Executives") for the fiscal year ended December 31,
2002.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                           SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------
                                                                                                     LONG-TERM
                                                        ANNUAL COMPENSATION                        COMPENSATION
                                          ------------------------------------------------      --------------------
Name and Principal Position                Year     Salary ($)    Bonus ($)     Other ($)           Options (#)
------------------------------------------------------------------------------------------      --------------------
<S>                                        <C>        <C>          <C>            <C>           <C>
Michael Favish                             2002       $250,000     $150,000       $17,408  (1)                   --
     Chairman and Chief Executive          2001        230,000       25,000        19,663  (2)               23,000
     Officer                               2000        210,000           --        19,746  (3)                   --

Scott P. Dickey                            2002       $200,000     $100,000       $10,554  (4)                   --
     President  and Chief Operating        2001        150,000       37,500         7,035  (5)              160,938
     Officer                               2000             --           --            --                        --

Thomas R. Hillebrandt                      2002       $135,000     $ 33,750       $15,825  (6)                   --
     Senior Vice President and Chief       2001        120,000       10,000         8,051  (7)               20,000
     Financial Officer                     2000         51,923       10,000         1,500  (8)               20,000

Jon D. Schneider                           2002       $115,000     $190,168       $15,297  (9)                   --
     Vice President, Promotion and         2001        105,000       24,000        13,516 (10)                5,000
     Team Sales                            2000         51,500       10,000         1,500 (11)               10,000

Steven B. Katzke                           2002       $120,000      $63,299        $8,533 (12)                   --
     Vice President, Entertainment         2001        100,000       54,837         3,000 (13)                7,000
     Sales and Marketing                   2000         90,000       20,000         3,000 (14)                   --
</TABLE>



                                       24


<PAGE>

(1)    Includes $9,000 for reimbursement of automobile expenses, $5,923 for
       disability insurance coverage and $2,485 for health insurance coverage

(2)    Includes $9,000 for reimbursement of automobile expenses, $8,546 for
       disability insurance coverage and $2,117 for health insurance coverage.

(3)    Includes $9,000 for reimbursement of automobile expenses, $8,000 for
       disability insurance coverage and $2,746 for health insurance coverage.

(4)    Includes $6,000 for reimbursement of automobile expenses, $2,069 for
       disability insurance coverage and $2,485 for health insurance coverage

(5)    Includes $4,500 for reimbursement of automobile expenses, $1,034 for
       disability insurance coverage and $1,501 for health insurance coverage.

(6)    Includes $3,000 for reimbursement of automobile expenses, $528 for
       disability insurance coverage and $12,297 for health insurance coverage

(7)    Includes $3,000 for reimbursement of automobile expenses, $132 for
       disability insurance coverage and $4,919 for health insurance coverage.

(8)    Includes $1,500 for reimbursement of automobile expenses.

(9)    Includes $3,000 for reimbursement of automobile expenses and $12,297 for
       health insurance coverage.

(10)   Includes $3,000 for reimbursement of automobile expenses and $10,516 for
       health insurance coverage.

(11)   Includes $1,500 for reimbursement of automobile expenses.

(12)   Includes $3,000 for reimbursement of automobile expenses and $5,533 for
       health insurance coverage.

(13)   Includes $3,000 for reimbursement of automobile expenses.

(14)   Includes $3,000 for reimbursement of automobile expenses.

STOCK OPTIONS

         No grants of stock options under the 1998 Stock Option Plan were made
to the Named Executives during 2002.

OPTION HOLDINGS

         The following table sets forth stock options exercised by the Named
Executives during 2002 and unexercised options held by the Named Executives as
of the end of 2002.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                        AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
----------------------------------------------------------------------------------------------------------------------------
                                                              SECURITIES UNDERLYING             VALUE OF UNEXERCISED
                                 SHARES        VALUE     UNEXERCISED OPTIONS AT 12/31/02  IN-THE-MONEY OPTIONS AT 12/31/02
                                EXERCISED    REALIZED                (#)(1)                            ($)(2)
NAME                               (#)          ($)         EXERCISABLE  UNEXERCISABLE      EXERCISABLE    UNEXERCISABLE
----------------------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>            <C>          <C>               <C>             <C>
Michael Favish                         --           --       134,667         15,333        $299,371           $32,659
Scott P. Dickey                        --           --        80,469         80,469        $233,407          $233,407
Thomas R. Hillebrandt                  --           --        20,000         20,000         $18,434           $30,516
Jon D. Schneider                       --           --         8,333          6,667          $4,417           $ 7,533
Steven B. Katzke                       --           --        20,667          4,667         $34,197           $ 9,941
</TABLE>

(1)  This represents the total number of shares subject to stock options held by
     the Named Executives as of December 31, 2002. These options were granted on
     various dates during the years 1994 through 2001.

(2)  Based on the $4.13 closing price of the Company's Common Stock on the
     Nasdaq National Market on December 31, 2002.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

         The Company is party to an employment agreement (the "Favish
Agreement") with Michael Favish, which provides that Mr. Favish will serve as
Chief Executive Officer for a three-year term commencing on August 10, 2002. Mr.
Favish's annual base salary was $210,000 during 2000, $230,000 during 2001 and
$250,000 during 2002, with annual increases at the discretion of the
compensation committee. Mr. Favish is also entitled to a bonus at the discretion
of the compensation committee and


                                       25
<PAGE>

will be granted options, vesting over a three-year period, to purchase not less
than 10,000 shares of Common Stock per year at a per share exercise price equal
to the then-current fair market value. During 2000 and 2002, Mr. Favish waived
his right to receive options to purchase 10,000 shares of Common Stock, pursuant
to the Favish Agreement. During 2001, Mr. Favish received options to purchase
23,000 shares of Common Stock pursuant to the Favish Agreement. The Favish
Agreement also provides that Mr. Favish will not engage in a business which
competes with the Company for the term of the Favish Agreement and for one year
thereafter.

         If the Favish Agreement is terminated by the Company, including a
constructive termination (as defined in the Favish Agreement), other than as a
result of death or disability of Mr. Favish or for cause (and other than in
connection with a change in control (as defined in the Favish Agreement) of the
Company), the Company shall pay Mr. Favish a severance and non competition
payment equal to the sum of (x) an amount equal to the base salary for the
remainder of the term plus (y) an amount equal to the bonus compensation earned
by Mr. Favish in respect of the last full fiscal year immediately preceding the
year of termination multiplied by the number of full fiscal years remaining in
the term. In the event of a termination of employment (including a constructive
termination) within six (6) months following a change in control of the Company,
the Company shall pay Mr. Favish a severance and non competition payment equal
to the greater of (x) the sum of (i) an amount equal to the base salary for the
remainder of the term plus (ii) an amount equal to the bonus compensation earned
by Mr. Favish in respect of the last full fiscal year immediately preceding the
year of termination multiplied by the number of full fiscal years remaining in
the Term; or (y) 2.99 times the sum of the base salary plus the bonus
compensation in respect of the year immediately preceding the year of
termination. If the Favish Agreement is not renewed beyond the term or if the
Favish Agreement is terminated by the Company, including a constructive
termination, other than as a result of death or disability of Mr. Favish or for
cause (and other than in connection with a change in control), during the last
twelve (12) months of the term, the Company shall pay Mr. Favish a severance and
non competition payment equal to the sum of (x) an amount equal to the base
salary in respect of the calendar year immediately preceding the year of
termination plus (y) an amount equal to the bonus compensation earned by Mr.
Favish in respect of the calendar year immediately preceding the year of
termination.

         The Company is party to an employment agreement (the "Dickey
Agreement") with Scott P. Dickey which provides that Mr. Dickey will serve as
President and Chief Operating Officer for a two-year term commencing on April 2,
2001 and continuing until April 1, 2003. Mr. Dickey's annual base salary will be
$200,000 during the term of the Dickey Agreement. Mr. Dickey is also entitled to
a bonus based on a bonus compensation plan jointly established between the Board
of Directors and Mr. Dickey. Such plan will be based on pre-tax net income
targets determined in accordance with generally accepted accounting principles
("GAAP"), applied on a consistent basis. The Dickey Agreement provides that the
Board of Directors will establish three separate pre-tax net income targets
which if achieved by the Company during such period, would entitle Mr. Dickey to
a bonus compensation of fifty percent (50%), seventy five percent (75%) and one
hundred percent (100%), respectively, of his base salary. For the fiscal year
ended December 31, 2001, the minimum bonus compensation was $37,500. The Dickey
Agreement also provides that Mr. Dickey shall receive options to purchase
125,000 shares of Common Stock at $1.12 per share (the market price on March 28,
2001, the date the Dickey Agreement was signed) and purchase 35,938 shares of
Common Stock at $1.61 per share (the market price on June 21, 2001) subject to
and in accordance with, the 1998 Employees Stock Option Plan. Fifty percent
(50%) of all options issued under the Dickey Agreement vested as of April 1,
2002 and the remaining options shall vest as of April 1, 2003. In the event Mr.
Dickey is terminated for cause (as defined in the Dickey Agreement), the Dickey
Agreement provides that Mr. Dickey is no longer entitled to any compensation. In
the event the agreement is involuntary terminated for good reason (as defined in
the Dickey Agreement), Mr. Dickey is entitled to a lump sum payment equal to the
unpaid base salary for the remainder of the term of the agreement, and the
granted options will automatically become fully vested and exercisable.



                                       26
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

STOCK OWNERSHIP

         The following table sets forth certain information as of March 28, 2003
with respect to the Common Stock of the Company beneficially owned by (a) all
persons known to the Company to own beneficially more than 5% of any class of
voting security of the Company, (b) all directors and nominees, (c) the Named
Executives (as defined under the caption "Executive Compensation") and (d) all
executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                      SUMMARY OF BENEFICIAL OWNERSHIP
--------------------------------------------------------------------------------------------------------------
                                                                              AMOUNT OF
                                                                             BENEFICIAL           % OF STOCK
NAME                                                                        OWNERSHIP (1)        OWNERSHIP (1)
-------------------------------------------------------------------- ------------------- ---------------------
<S>                                                                  <C>                 <C>
Michael Favish                                                                576,086 (2)                15.8%
Nicholas A. Giordano                                                           32,500 (3)                 0.9%
Joel K. Rubenstein                                                             35,000 (4)                 1.0%
John J. Shea                                                                   44,000 (5)                 1.2%
James D. McQuaid                                                                   --                      --
Scott P. Dickey                                                               170,938 (6)                 4.7%
Thomas R. Hillebrandt                                                          29,167 (7)                 0.8%
Jon D. Schneider                                                                  --  (8)                  --
Steven B. Katzke                                                               19,696 (9)                 0.5%
Other officers                                                                 66,167                     1.8%
                                                                     ------------------- ---------------------
All officers and directors as a group                                         973,554                    26.7%
                                                                     =================== =====================
</TABLE>

(1)      This table identifies persons and entities having beneficial ownership
         with respect to the shares set forth opposite their names as of March
         28, 2003, according to information furnished to the Company by each of
         them. A person is deemed to be the beneficial owner of securities that
         can be acquired by such person within 60 days from the date of this
         annual report upon the conversion of convertible securities or the
         exercise of warrants or options. Percent of Common Stock ownership is
         based on 3,651,501 shares of Common Stock outstanding, and assumes that
         in each case the person or entity only, or the group only, exercised
         his or its rights to purchase all shares of Common Stock underlying
         stock options and warrants.

(2)      Includes 110,000, 10,000, 7,000 and 15,333 shares of Common Stock
         issuable upon exercise of currently exercisable options at per share
         exercise prices of $1.69, $2.69, $6.63 and $2.00, respectively.

(3)      Includes 5,000, 5,000, 5,000, 5,000, and 5,000 shares of Common Stock
         issuable upon exercise of currently exercisable options at per share
         exercise prices of $2.38, $4.75, $4.00, $1.90 and $4.55, respectively.

(4)      Includes 7,500, 5,000, 5,000, 5,000, 5,000 and 5,000 shares of Common
         Stock issuable upon exercise of currently exercisable options at per
         share exercise prices of $1.69, $2.38, $4.75, $4.00, $1.90 and $4.55,
         respectively.

(5)      Includes 5,000, 5,000, 5,000 and 5,000 shares of Common Stock issuable
         upon exercise of currently exercisable options at per share exercise
         prices of $4.84, $4.00, $1.90 and $4.55, respectively.

(6)      Includes 125,000 and 35,938 shares of Common Stock issuable upon
         exercise of currently exercisable options at per share exercise prices
         of $1.12 and $1.61, respectively.

(7)      Includes 13,334 and 13,333 shares of Common Stock issuable upon
         exercise of currently exercisable options at per share exercise prices
         of $3.81 and $2.00, respectively.

(8)      All options were exercised or lost by February 27, 2003 due to
         resignation of officer.

(9)      Includes  10,000,  3,334,  5,000 and 7,000  shares of Common  Stock
         issuable  upon  exercise of currently exercisable options at per share
         exercise prices of $1.69, $2.69, $6.63 and $2.00, respectively.



                                       27
<PAGE>

         For the year ended December 31, 2002 the Company had the following
compensation plans under which it has authorized the issuance of equity
securities.

<TABLE>
<CAPTION>
                                                Number of
                                            securities to be      Weighted average
                                               issued upon         exercise price
                                               exercise of         of outstanding           Number of
                                               outstanding            options,             securities
                                                options,            warrants and            remaining
                                              warrants and             rights.            available for
    Plan Category                                rights                                  future issuance
    ------------------------------------    ------------------    ------------------    ------------------
<S>                                         <C>                   <C>                   <C>

    Equity compensation plans
    approved by security holders                      618,525                 $2.33               12,850

    Equity compensation plans not
    approved by security holders                       61,200                 $5.05                    --
                                            ------------------    ------------------    ------------------
        Total                                         679,725                 $2.57               12,850
                                            ==================    ==================    ==================
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          Michael Favish, Chairman and Chief Executive Officer of the Company,
and Karen Betro, Vice President of Operations of the Company, have a long-term
relationship with no spousal rights. Derrick Favish, a non-officer employee and
stockholder of the Company, is the brother of Michael Favish, the Chairman and
Chief Executive Officer of the Company. Terry Favish, non-officer employee of
the Company, is the son of Michael Favish.

         Any future transaction with directors, executive officers or their
affiliates, including, without limitation, any granting or forgiveness of loans,
will be made only if the transaction has been approved by a majority of the then
independent and disinterested members of the Board of Directors and is on terms
no less favorable to the Company than could have been obtained from unaffiliated
parties.

ITEM 14. DISCLOSURE CONTROLS AND PROCEDURES

          The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
reports filed pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms,
and that such information is accumulated and communicated to the Company's
management, including its chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure.

         Within 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including its Chairman and Chief Executive Officer,
Michael Favish, and its Senior Vice President and Chief Financial Officer,
Thomas R. Hillebrandt, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon the foregoing, the Company concluded that its disclosure
controls and procedures are effective in timely alerting the Company's
management to material information relating to the Company required to be
included in the Company's Exchange Act reports.

         Since the most recent review of the Company's disclosure controls and
procedures by Messrs. Favish and Hillebrandt, there have been no significant
changes in internal controls or in other factors that could significantly affect
these controls.



                                       28

<PAGE>
                                    PART IV

ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K

         (A). Exhibits

         EXHIBIT
         NUMBER                                      DESCRIPTION
         --------                                    -----------

         3.1(2)(P)       Amended and Restated Certificate of Incorporation of
                         Fotoball USA, Inc., a Delaware corporation
                         (incorporated herein by reference to Exhibit 3.1(2) of
                         the Registration Statement on Form SB-2).

         3.2(2)(P)       Amended and Restated By-laws of Fotoball USA, Inc., a
                         Delaware corporation (incorporated herein by reference
                         to Exhibit 3.2(2) of the Form SB-2).

         4.4(P)          Specimen Stock Certificate (incorporated herein by
                         reference to Exhibit 4.4 of the Form SB-2).

         4.5(1)          Specimen Form of Rights Certificate (incorporated
                         herein by reference to Exhibit 2.1 of the Registration
                         Statement on Form 8-A/A No. 1 (File No. 0-21239) (the
                         "Amended Form 8-A")).

         4.5(2)          Form of Amended and Restated Rights Agreement, dated as
                         of August 19, 1996, as amended and restated as of May
                         18, 2000, between Fotoball USA, Inc. and Continental
                         Stock Transfer & Trust Company (incorporated herein by
                         reference to Exhibit 2.2 of the Amended Form 8-A).

         4.5(3)          Form of Certificate of Designation, Preferences and
                         Rights of Series A Preferred Stock (incorporated herein
                         by reference to Exhibit 2.3 of the Registration
                         Statement on Form 8-A (File No. 0-21239)).

         4.5(4)          Summary of Rights Plan (incorporated herein by
                         reference to Exhibit 2.4 of the Amended Form 8-A).

         10.1(4)         License Agreement with National Football League
                         Properties, Inc., dated April 14, 1998 (incorporated
                         herein by reference to the Company's Annual Report on
                         Form 10-KSB for the year ended December 31, 1998).

         10.1(5)         License Agreement with Major League Baseball Players
                         Association dated January 8, 2003.

         10.1(6)         License Agreement with Major League Baseball
                         Properties, Inc. dated February 26, 2003.

         10.3(6)*        1998 Stock Option Plan of the Company (incorporated
                         herein by reference to Exhibit 4.1 of the Form S-8
                         filed on July 23, 1998).

         10.3(7)*        Form of Stock Option Agreement (incorporated herein by
                         reference to Exhibit 4.2 of the Form S-8 filed on July
                         23, 1998).

         10.3(8)*        Amendment to 1998 Stock Option Plan of the Company
                         (incorporated herein by reference to Exhibit 4.1 of the
                         From S-8 filed on August 16,1999).

         10.3(9)*        Amendment to 1998 Stock Option Plan of the Company
                         (incorporated herein by reference to Exhibit 4.1 of the
                         From S-8 filed on August 3,2001).

         10.4(2)*        Form of Employment Agreement with Scott P. Dickey dated
                         March 28, 2001 (incorporated herein by reference to the
                         Form 10-Q for the period ended June 30, 2001).

         10.4(3)*        Form of Employment Agreement with Michael Favish dated
                         August 10, 2002 (incorporated herein by reference to
                         the Form 10-Q for the period ended September 30, 2002).

         10.6            Lease, dated March 13, 2000, by and between the Company
                         and LBA VF-II, LLC, with respect to 6740 Cobra Way, San
                         Diego, California (incorporated herein by reference to
                         Exhibit 10.6 of the 1999 Form 10-KSB).



                                       29
<PAGE>

         10.10(10)       Loan Agreement dated July 15, 2001 between Fotoball
                         USA, Inc. and U.S. Bank National Association
                         (incorporated herein by reference to the Form 10-Q for
                         the period ended September 30, 2001).

         10.10(11)       Amended Loan Agreement dated February 20, 2002 between
                         Fotoball USA, Inc. and U.S. Bank National Association.

         10.10(12)       Loan and Security Agreement and Variable Rate Single
                         Payment Note with Comerica (incorporated herein by
                         reference to the Form 10-Q for the period ended June
                         30, 2002).

         16.1            Letter from Good Swartz Brown & Berns LLP addressed to
                         the United States Securities and Exchange Commission
                         (incorporated herein by reference to Exhibit 16.1 of
                         the Form 8-K Current Report dated March 26, 2001).

         16.2            Letter from Good Swartz Brown & Berns LLP addressed to
                         the United States Securities and Exchange Commission
                         (incorporated herein by reference to Exhibit 16.2 of
                         the Form 8-K Current Report dated March 12, 2002).

         23.1            Consent of Good Swartz Brown & Berns LLP, independent
                         public accountants.

         23.2            Consent of KPMG LLP, independent public accountants.

         99.1            Certifications Pursuant To 18 U.S.C. Section 1350, as
                         Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                         Act Of 2002.

         *    Indicates exhibits relating to executive compensation.

         (P)  Indicates that document was originally filed with the Securities
              and Exchange Commission in paper form and that there have been no
              changes or amendments to the document which would require filing
              of the document electronically with this Form 10-K.

         (B)  Reports on Form 8-K

         The Company did not file any reports on Form 8-K during the fourth
         quarter of the year ended December 31, 2002.



                                       30
<PAGE>



                                   SIGNATURES


In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                                           Fotoball USA, Inc.
                                                          ---------------------
                                                              (Registrant)

Dated: March 28, 2003                       By:  /s/ Michael Favish
                                                 ------------------
                                                  Michael Favish
                                                  Chairman and Chief Executive
                                                  Officer

In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Dated: March 28, 2003                       By:  /s/ Michael Favish
                                                 ------------------
                                                  Michael Favish
                                                  Chairman and Chief Executive
                                                  Officer


Dated: March 28, 2003                       By:  /s/ Thomas R. Hillebrandt
                                                 -------------------------
                                                  Thomas R. Hillebrandt
                                                  Senior Vice President and
                                                  Chief Financial Officer
                                                  (Principal Financial and
                                                  Accounting Officer)


Dated: March 28, 2003                       By:  /s/ Scott P. Dickey
                                                 -------------------
                                                  Scott P. Dickey
                                                  President, Chief Operating
                                                  Officer and Director


Dated: March 28, 2003                        By:  /s/ Nicholas A. Giordano
                                                  ------------------------
                                                   Nicholas A. Giordano
                                                   Director


Dated: March 28, 2003                        By:  /s/ Joel K. Rubenstein
                                                  ----------------------
                                                   Joel K. Rubenstein
                                                   Director



Dated: March 28, 2003                       By:  /s/ John J. Shea
                                                 ----------------
                                                  John J. Shea
                                                  Director


Dated: March 28, 2003                       By:  /s/ James D. McQuaid
                                                 --------------------
                                                  James D. McQuaid
                                                  Director



                                       31
<PAGE>



                                                  RULE 13a-14 CERTIFICATIONS



I, Michael Favish, certify that:

1.   I have reviewed this annual report on Form 10-K of FOTOBALL USA, INC;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report (the "Evaluation Date"); and

     c)  presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Dated: March 28, 2003                      BY:      /s/ Michael Favish
                                                    ------------------
                                                    Michael Favish
                                                    Chairman and Chief Executive
                                                    Officer (Principal Executive
                                                    Officer)



                                       32
<PAGE>



I, Thomas R. Hillebrandt, certify that:

1.   I have reviewed this annual report on Form 10-K of FOTOBALL USA, INC;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report (the "Evaluation Date"); and

     c)  presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Dated: March 28, 2003                       BY:      /s/ Thomas R. Hillebrandt
                                                     -------------------------
                                                     Thomas R. Hillebrandt
                                                     Senior Vice President and
                                                     Chief Financial Officer
                                                     (Principal Financial and
                                                     Accounting Officer)




                                       33
<PAGE>



                               FOTOBALL USA, INC.
               INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<S>                                                                                                    <C>
Reports of Independent Auditors                                                                           F-1 to F3

Balance Sheets as of December 31, 2002 and 2001                                                                 F-4

Statements of Operations for the years ended December 31, 2002, 2001 and 2000                                   F-5

Statement of Stockholders' Equity for the years ended December 31, 2002, 2001 and 2000                          F-6

Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000                                   F-7

Notes to Financial Statements                                                                           F-8 to F-21

Schedule II - Valuation and Qualifying Accounts                                                                F-22
</TABLE>


                                       34
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
Fotoball USA, Inc.

We have audited the 2002 financial statements of Fotoball USA, Inc. (the
Company) as listed in the accompanying index. In connection with our audit of
the 2002 financial statements, we also have audited the 2002 financial statement
schedule as listed in the accompanying index. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit. The 2001 and 2000 financial
statements and financial statement schedule of the Company as listed in the
accompanying index were audited by other auditors. Those auditors expressed
unqualified opinions on the 2001 and 2000 financial statements and financial
statement schedule in their reports dated February 1, 2002 and February 2, 2001,
respectively.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 2002 financial statements referred to above present fairly,
in all material respects, the financial position of Fotoball USA, Inc. as of
December 31, 2002, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the related 2002 financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

/s/ KPMG LLP
------------
KPMG LLP
San Diego, California

February 5, 2003



                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
Fotoball USA, Inc.



We have audited the accompanying balance sheet of FOTOBALL USA, INC. as of
December 31, 2001 and the related statements of operations, stockholders' equity
and cash flows for the year then ended. Our audit also included the supplemental
data on page F-22. These financial statements and supplemental data are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and supplemental data based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FOTOBALL USA, INC. as of
December 31, 2001 and the results of operations, stockholders' equity and cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such
supplemental data, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.




/s/ Good Swartz Brown & Berns LLP
---------------------------------
Good Swartz Brown & Berns LLP




Los Angeles, California
February 1, 2002



                                      F-2
<PAGE>

                          INDEPENDENT AUDITORS' REPORT






To the Board of Directors and Stockholders
Fotoball USA, Inc.



We have audited the accompanying balance sheet of FOTOBALL USA, INC. as of
December 31, 2000 and the related statements of operations, stockholders' equity
and cash flows for the year ended December 31, 2000. Our audit also included the
supplemental data on page F-22. These financial statements and supplemental data
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and supplemental data based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FOTOBALL USA, INC. as of
December 31, 2000 and the results of operations, stockholders' equity and cash
flow for the year ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such supplemental data, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.




      Hollander, Lumer  & Co. LLP





Los Angeles, California
February 2, 2001



F-3
<PAGE>

                               FOTOBALL USA, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    December 31,         December 31,
                                                                                        2002                 2001
                                                                                  -----------------    ------------------
<S>                                                                               <C>                  <C>
                                     ASSETS
  Current assets
       Cash and equivalents                                                       $     5,189,250       $     5,779,203
       Accounts receivable, net                                                         3,684,133             3,705,873
       Other receivables                                                                  125,489               359,400
       Inventories                                                                      3,946,922             2,655,702
       Prepaid expenses and other                                                         317,841             1,165,209
       Deferred income taxes                                                              908,560               951,000
                                                                                  -----------------     -----------------
                    Total current assets                                               14,172,195            14,616,387
                                                                                  -----------------     -----------------

       Property and equipment, net                                                      2,203,169             2,225,106
       Deposits and other assets                                                           79,498               158,995
                                                                                  -----------------     -----------------
                                                                                  $    16,454,862       $    17,000,488
                                                                                  =================     =================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities
       Accounts payable and accrued expenses                                      $      3,137,987      $     1,861,842
       Customer deposits                                                                   163,102            1,978,779
       Income taxes payable                                                                 99,200                   --
       Current portion of long-term debt                                                        --              741,368
       Current portion of capital leases                                                    73,796               92,773
                                                                                  -----------------     -----------------
                    Total current liabilities                                            3,474,085            4,674,762
                                                                                  -----------------     -----------------

  Long-term liabilities
       Line of credit                                                                      669,397                   --
       Long-term debt, net of current portion                                                   --              927,145
       Capital leases, net of current portion                                              135,075              183,775
       Deferred rent                                                                       293,969              248,105
       Deferred income taxes                                                                53,000              121,000
       Long-term reserve for discontinued operations                                         1,480               24,290
                                                                                  -----------------     -----------------
                    Total long-term liabilities                                          1,152,921            1,504,315
                                                                                  -----------------     -----------------
                    Total liabilities                                                    4,627,006            6,179,077
                                                                                  -----------------     -----------------

  Stockholders' equity
       Preferred stock, $.01 par value; Series A, authorized - 1,000,000
           shares, 0 shares issued and outstanding at December 31, 2002
           and 2001, respectively                                                               --                   --
       Common stock, $.01 par value; authorized - 15,000,000 shares;
           Issued and outstanding - 3,609,834 shares at December 31,
           2002 and 3,580,033 shares at December 31, 2001                                   36,098               35,800
       Additional paid-in capital                                                       11,754,368           11,680,337
       Retained earnings (accumulated deficit)                                              37,390             (894,726)
                                                                                  -----------------     -----------------
                    Total stockholders' equity                                          11,827,856           10,821,411
                                                                                  -----------------     -----------------
                                                                                  $     16,454,862      $    17,000,488
                                                                                  =================     =================
</TABLE>

Commitments and contingencies (note 8)

                 See accompanying notes to financial statements

                                      F-4

<PAGE>




                               FOTOBALL USA, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                             ---------------------------------------------------------
                                                                    2002               2001               2000
                                                             ------------------ ------------------- ------------------
<S>                                                          <C>                <C>                 <C>
Net sales                                                        $  43,995,967     $  31,631,931       $  26,687,158
Cost of sales                                                       27,713,725        20,164,421          17,241,579
                                                             ------------------ ------------------- -------------------
     Gross profit                                                   16,282,242        11,467,510           9,445,579
                                                              ----------------- ------------------- -------------------
Operating expenses
     Royalties                                                       3,413,947         2,264,291           1,951,647
     Marketing                                                       4,840,372         3,535,607           2,942,729
     General and administrative                                      6,043,330         4,996,058           3,807,588
     Depreciation and amortization                                     514,137           514,113             450,654
     Loss from sale of equipment                                            --                --             122,541
                                                             ------------------ ------------------- ------------------
                  Total operating expenses                          14,811,786        11,310,069           9,275,159
                                                             ------------------ ------------------- ------------------
                  Income from operations                             1,470,456           157,441             170,420
                                                             ------------------ ------------------- ------------------
Other income (expense)
     Interest expense                                                  (39,754)          (96,036)            (32,249)
     Interest income                                                    77,414           104,039             127,100
                                                             ------------------ ------------------- ------------------
                  Total other income (expense)                          37,660             8,003              94,851
                                                             ------------------ ------------------- ------------------
Income from continuing operations before income taxes                1,508,116           165,444             265,271
     Income tax expense                                                576,000            42,000              86,000
                                                             ------------------ ------------------- ------------------

Income from continuing operations                                      932,116           123,444             179,271
                                                             ------------------ ------------------- ------------------

Discontinued operations:
     Loss on discontinued operations net of tax benefit
        ($245,000)                                                          --          (484,650)                 --
     Loss on disposal of discontinued operations net of tax
        benefit ($446,000)                                                  --          (629,376)                 --
                                                             ------------------ ------------------- ------------------

Net income (loss)                                               $      932,116     $    (990,582)      $     179,271
                                                             ================== =================== ==================

Weighted average number of common shares outstanding:
                  Basic                                              3,598,134         3,579,516           3,576,472
                                                             ================== =================== ==================
                  Diluted                                            3,915,876         3,699,613           3,720,952
                                                             ================== =================== ==================

Income from continuing operations per common share:
                  Basic                                      $            0.26  $           0.03   $            0.05
                                                             ================== =================== ==================
                  Diluted                                    $            0.24  $           0.03   $            0.05
                                                             ================== =================== ==================

Loss from discontinued operations per common share:
                  Basic                                                   --    $         (0.31)                 --
                                                             ================== =================== ==================
                  Diluted                                                 --    $         (0.31)                 --
                                                             ================== =================== ==================

Net income (loss) per common share:
                  Basic                                      $            0.26  $         (0.28)    $          0.05
                                                             ================== =================== ==================
                  Diluted                                    $            0.24  $         (0.28)    $          0.05
                                                             ================== =================== ==================
</TABLE>

                 See accompanying notes to financial statements



                                      F-5
<PAGE>




<TABLE>
<CAPTION>
                                                       FOTOBALL USA, INC.
                                               STATEMENTS OF STOCKHOLDERS' EQUITY
                                       THREE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

                                                                                                 Retained
                                                  Common Stock               Additional          earnings
                                         -------------------------------       paid-in         (accumulated
                                            Shares            Amount           capital            deficit)           Total
                                         --------------   --------------   ----------------   ----------------   ---------------
<S>                                      <C>              <C>              <C>                <C>                <C>
BALANCE, December 31, 1999                 3,566,536      $    35,665       $ 11,636,471      $     (83,415)     $ 11,588,721

Stock-based compensation expense                  --               --             15,772                 --            15,772

Exercise of stock options                     12,496              125             22,634                 --            22,759

Net income                                        --               --                 --            179,271           179,271
                                         --------------   --------------   ----------------   ----------------   ---------------

BALANCE, December 31, 2000                 3,579,032           35,790         11,674,877             95,856        11,806,523

Stock-based compensation expense                  --               --              3,780                 --             3,780

Exercise of stock options                      1,001               10              1,680                 --             1,690

Net loss                                          --               --                 --           (990,582)         (990,582)
                                         --------------   --------------   ----------------   ----------------   ---------------

BALANCE, December 31, 2001                 3,580,033           35,800         11,680,337           (894,726)       10,821,411

Exercise of stock options                     29,801              298             74,031                 --            74,329

Net income                                        --               --                 --            932,116           932,116
                                         --------------   --------------   ----------------   ----------------   ---------------

BALANCE, December 31, 2002                 3,609,834      $    36,098       $ 11,754,368      $      37,390      $ 11,827,856
                                         ==============   ==============   ================   ================   ===============
</TABLE>

                 See accompanying notes to financial statements



                                      F-6
<PAGE>




                               FOTOBALL USA, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                               ----------------------------------------------------------
                                                                    2002                 2001                 2000
                                                               ----------------     ----------------     ----------------
<S>                                                               <C>                 <C>                 <C>
  Cash flows from operating activities:
    Net income (loss)                                             $    932,116        $    (990,582)      $      179,271
    Adjustments to reconcile net income (loss) to net cash
       provided by operating activities:
       Depreciation and amortization of property and
       equipment                                                       560,710            1,037,829              463,174
       Provision for deferred income taxes                             (25,560)            (276,000)             107,000
       Stock-based compensation                                             --                3,780               15,772
       Loss on sale of equipment                                            --                   --              122,541
       Provision for accounts receivable reserves                      292,784              483,492               98,623
    Changes in operating assets and liabilities:
       Accounts receivable                                            (271,044)            (911,666)             336,692
       Other receivables                                               233,911              (60,841)            (298,559)
       Inventories                                                  (1,291,220)           1,377,392               72,581
       Prepaid expenses and other                                      847,368             (597,933)            (313,616)
       Accounts payable and accrued expenses                         1,276,145              358,008             (328,948)
       Customer deposits                                            (1,815,677)           1,834,784                5,742
       Income taxes payable                                             99,200                   --             (158,185)
       Deferred rent                                                    45,864               13,220              234,884
       Long-term reserve for discontinued operations                   (22,810)              24,290                   --
                                                               ----------------     ----------------     ----------------
  Net cash provided by operating activities                            861,787            2,295,773              536,972
                                                               ----------------     ----------------     ----------------

  Cash flows from investing activities
    Purchase of property and equipment                                (512,968)            (476,416)          (1,451,488)
    Decrease (increase) in long-term deposits                           79,498               93,772             (422,782)
                                                               -----------------    ----------------     ----------------
  Net cash used in investing activities                               (433,470)            (382,644)          (1,874,270)
                                                               ----------------     ----------------     ----------------

  Cash flows from financing activities
    Net borrowings from line of credit                                 669,397                   --                   --
    Proceeds from long-term debt                                       410,006            1,500,000              650,000
    Payments on capital leases                                         (93,483)            (106,828)            (180,680)
    Payments on long-term debt                                      (2,078,519)            (450,146)             (31,341)
    Proceeds from exercise of stock options                             74,329                1,690               22,759
                                                               ----------------     ----------------     ----------------
  Net cash provided by (used in) financing activities               (1,018,270)             944,716              460,738
                                                               ----------------     ----------------     ----------------

  Net increase (decrease) in cash and equivalents                     (589,953)           2,857,845             (876,560)
  Cash and equivalents, beginning of year                            5,779,203            2,921,358            3,797,918
                                                               ----------------     ----------------     ----------------
  Cash and equivalents, end of year                               $  5,189,250         $  5,779,203         $  2,921,358
                                                               ================     ================     ================

  Supplemental disclosure of cash flow information:
    Interest paid                                                 $     82,386         $    165,003         $     32,249
    Incomes taxes paid                                            $    530,800         $         --         $    305,000

  Supplemental schedule of noncash investing and
  financing activities:
    Equipment acquired under capital leases                       $     25,806         $     57,385         $     99,735
</TABLE>

                 See accompanying notes to financial statements



                                      F-7
<PAGE>

                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS - The Company manufactures
     and markets souvenir and promotional products. Four separate sales groups
     sell the Company's products and services into distinct markets. Fotoball
     Sports services national and regional retailers; Fotoball Entertainment
     Marketing services entertainment destinations such as theme parks, resorts,
     restaurants and casinos; Fotoball Sports Team supports the retail needs of
     professional sports franchises and concessionaires across the nation and
     Marketing Headquarters develops custom promotional programs for Fortune 500
     companies. The Company currently holds licenses with Major League Baseball,
     the National Football League, the National Hockey League, more than one
     hundred NCAA colleges, Warner Bros. "Scooby Doo," Marvel's "Spider-Man,"
     "Incredible Hulk" and "X-Men," Nickelodeon's "Blue's Clues," Mattel's
     "Barbie" and The Coca-Cola Company.

     RECLASSIFICATION - Certain amounts in the 2000 and 2001 financial
     statements have been reclassified to conform to the 2002 presentation.

     CASH AND EQUIVALENTS - Cash and equivalents include money market funds and
     marketable securities that are highly liquid and have original maturities
     of three months or less at the date of purchase.

     Cash and cash equivalents consist of the following:

                                                  December 31,
                                      -------------------------------------
                                           2002                 2001
                                      ----------------    -----------------
         Cash deposits                    $ 1,153,391          $   731,362
         Short-term securities              4,035,859            5,047,841
                                      ----------------    -----------------

              Total                       $ 5,189,250          $ 5,779,203
                                      ================    =================

     Short-term securities (money market fund account maturing in less than
     three months) are stated at fair market value including earned interest. At
     times such investments may be in excess of the Federal Deposit Insurance
     (FDIC) insurance limits.

     CONCENTRATION OF CREDIT RISK - The Company invests its excess cash in
     various investment grade instruments such as certificates of deposit and
     money market funds. The Company invests its cash in what it believes to be
     credit-worthy financial institutions and has established guidelines
     relative to diversification and maturities with the objectives of
     maintaining safety and liquidity. These guidelines are periodically
     reviewed and modified to take advantage of recent trends and interest
     rates. The Company has not experienced any losses on its cash equivalents
     or short-term investments in 2002, 2001 or 2000.

     Concentrations of credit risk with respect to accounts receivable are
     mitigated in part due to the large number of retail and team customers to
     which the Company's retail products are sold. Additionally, a significant
     percentage of the Company's promotion and entertainment sales are to
     Fortune 500 companies. The Walt Disney Company accounted for approximately
     18%, 26% and 20% of total sales in 2002, 2001 and 2000, respectively. Kraft
     Foods North America Inc. accounted for 17% of total sales in 2002. No other
     customer represented more than 10% of total sales in 2002, 2001 or 2000.
     Any increase to the allowances which offsets accounts receivable, are
     charged to the statement of operations, net of actual accounts receivable
     write-offs.

     The Company does not engage in any futures contracts or hedging activities
     and does not engage in any business in currency other than US currency.



                                      F-8
<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     FAIR VALUE OF FINANCIAL INSTRUMENTS - Because of their short maturities,
     the carrying amounts for cash and cash equivalents, accounts receivable,
     other receivables, accounts payable and accrued expenses, and customer
     deposits approximate their fair value. The carrying amounts for the bank
     line of credit and long-term debt approximates fair value as the interest
     rates and terms are substantially similar to rates and terms which could be
     obtained currently for similar instruments.

     ACCOUNTS RECEIVABLE - In order to determine the value of the Company's
     account receivable, the Company makes allowances for estimated bad debts
     based on a variable percentage applied by credit risk, for other
     uncollectible amounts including estimated chargebacks and volume discounts
     based on type of customer and applicable customer agreements and for
     estimated sales returns based upon actual historical return rates.

     INVENTORIES - Inventories have been valued at the lower of cost or market.
     Cost is determined using the first-in, first-out method (FIFO). The Company
     periodically reviews its inventory to evaluate it for discontinued and
     obsolete products. These products usually include products that are dated
     and produced for special promotional events, such as Super Bowls, Final
     Four college tournaments, World Series, and products that are produced
     under licenses that have been terminated or products with low turnover
     rates. Any inventory items where the cost exceeds the realizable value is
     provided for in the reserve for discontinued and obsolete inventory. The
     loss from the liquidation or destruction of obsolete and discontinued
     inventory is applied against the inventory reserve allowance.

     PROPERTY AND EQUIPMENT - Property, equipment and leasehold improvements are
     stated at cost. Equipment acquired under capital leases is stated at the
     present value of the future minimum lease payments. Additions and
     improvements are capitalized. Maintenance and repairs are expensed when
     incurred. Depreciation and amortization are calculated using the
     straight-line method over their estimated useful lives as follows:

       Office equipment and furniture        5 to 7 years
       Show exhibits                         7 years
       Molds                                 2 to 5 years
       Machinery and equipment               7 years
       Leasehold improvements                10 years or remaining life of lease

     Amortization of equipment obtained under capital leases is included with
     depreciation and amortization expense in the accompanying financial
     statements.

     IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically assesses the
     impairment of long-lived assets to be held for use based on expectations of
     future undiscounted cash flows from the related operations, and when
     circumstances dictate, adjusts the carrying value of the asset to the
     extent the carrying value exceeds the fair value of the asset. These
     factors, along with management's plans with respect to the operations, are
     considered in assessing the recoverability of purchased intangibles and
     property and equipment.

     INTANGIBLE ASSETS - In June 2001, the Financial Accounting Standards Board
     issued Statement of Financial Accounting Standards No. 142, Goodwill and
     Other Intangible Assets (SFAS 142). SFAS 142 addresses financial accounting
     and reporting for acquired goodwill and other intangible assets and
     supersedes APB Opinion No. 17, Intangible Assets. Under the new rules,
     goodwill and intangible assets that have indefinite useful lives will not
     be amortized but rather will be tested at least annually for impairment.
     Intangible assets that have finite useful lives will continue to be
     amortized over their useful lives, but without the constraint of an
     arbitrary ceiling. The provisions of this Statement are



                                      F-9
<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     required to be applied starting with fiscal years beginning after December
     15, 2001. The Company adopted SFAS 142 on January 1, 2002. The adoption of
     SFAS 142 did not have a material impact on the results of operations or
     financial position.

     REVENUE RECOGNITION - The Company recognizes sales in accordance with SAB
     No. 101 "Revenue Recognition in Financial Statements". Sales of products
     domestically are recognized when the products are shipped from the
     Company's facility. Sales terms in general are FOB shipping point and title
     passes at the time of shipment. Sales of imported products, which are drop
     shipped directly to the customer, are recognized at the time shipments are
     received at the customer's designated location. There are no significant
     rights of return or customer acceptance provisions with respect to the
     Company's sales. The Company may from time to time agree to accept returns
     from customers as an accommodation. Consignment sales, which are generally
     not significant, are recognized when the consignee sells the products.

     In accordance with EITF 00-22 "Accounting for `Points' and Certain Other
     Time-Base or Volume-Based Sales Incentive Offers, and Offers for Free
     Products or Services to be Delivered in the Future" issued by the Emerging
     Issues Task Force, volume discounts allowed to customers are treated as a
     reduction in revenue. The volume discount amount is estimated based on the
     terms of the discount allowed and estimated sales from the customer. The
     liability for volume discounts is included in the allowance for
     uncollectible receivables and as an offset to accounts receivable on the
     balance sheet.

     EITF 01-09 "Accounting for Consideration Given by a Vendor to a Customer
     (Including a Reseller of Vendor's Products") amended and codified EITF
     00-14 "Accounting for Certain Sales Incentives" and EITF 00-25 "Vendor
     Income Statement Characterization of Consideration Paid to a Reseller of
     the Vendor's Products." This issue requires certain sales incentives,
     slotting fees and cooperative advertising expenses to be classified as
     reductions to revenue rather than as expenses. The provisions of EITF 01-09
     are effective for financial statements issued for fiscal years beginning
     after December 15, 2001. The Company adopted EITF 01-09 on January 1, 2002.
     For presentation purposes, $164,882 and $242,172 were reclassified as a
     reduction in revenue for the years ending December 31, 2001 and 2000,
     respectively. There was no impact to the Company's net income (loss) as a
     result of the adoption of EITF 01-09.

     ADVERTISING - Advertising costs are generally expensed as incurred.
     Advertising costs were $15,820, $154,181 and $147,841 for the years ended
     December 31, 2002, 2001 and 2000, respectively.

     ROYALTIES AND LICENSING ARRANGEMENTS - Royalties due to licensors are
     generally provided for based upon a negotiated percentage of related net
     sales, as defined contractually, and are frequently subject to a minimum
     guaranteed royalty over the term of the contract. Prepaid license costs are
     charged to operations over the term of the contractual agreement, or based
     upon a percentage of related net sales.

     STOCK-BASED COMPENSATION - In December 2002, the Financial Accounting
     Standards Board issued Statement of Financial Accounting Standards No. 148,
     Accounting for Stock-Based Compensation--Transition and Disclosure--an
     amendment of FASB Statement No. 123 (SFAS 148). SFAS 148 amends FASB
     Statement No. 123, Accounting for Stock-Based Compensation, to provide
     alternative methods of transition for a voluntary change to the fair value
     based method of accounting for stock-based employee compensation. In
     addition, this Statement amends the disclosure requirements of Statement
     123 to require prominent disclosures in both annual and interim financial
     statements about the method of accounting for stock-based employee
     compensation and the effect of the method used on reported results. The
     Company has adopted the disclosure provisions of SFAS 148 beginning with
     its annual financial statements for the year ended December 31, 2002.



                                      F-10

<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The Company applies Accounting Principles Board Opinion No. 25, Accounting
     for Stock Issued to Employees and related interpretations in accounting for
     its stock options. No compensation expense has been recognized for the
     options granted under the 1998 Plan. Compensation cost is based upon the
     fair value at the grant date consistent with the methodology prescribed
     under SFAS No. 123, "Accounting for Stock-Based Compensation". The
     following table represents the effect on net income and earnings per share
     if the Company had applied the fair value recognition provisions of FASB
     Statement No. 123 "Accounting for Stock-Based Compensation" as amended by
     SFAS No. 148 "Accounting for Stock-Based Compensation Transition and
     Disclosure". The fair value of the options granted during 2002 is estimated
     to range from $2.61 to $2.87 on the date of grant using the Black-Scholes
     option-pricing model with the following assumptions: dividend yield 0%,
     volatility of 77%, risk-free interest rate of 1.57%, actual forfeitures and
     an expected option life of 4 years. The fair value of the options granted
     during 2001 is estimated to range from $0.64 to $1.90 on the date of grant
     using the Black-Scholes option-pricing model with the following
     assumptions: dividend yield 0%, volatility of 88%, risk-free interest rate
     of 2.93%, assumed forfeiture rate of 4% and an expected life of 3 years.
     The fair value of the options granted during 2000 is estimated to range
     from $1.83 to $3.34 on the date of grant using the Black-Scholes
     option-pricing model with the following assumptions: dividend yield 0%,
     volatility of 79%, risk-free interest rate of 5.66%, assumed forfeiture
     rate of 4% and an expected life of 3 years.

<TABLE>
<CAPTION>
                                                                2002                  2001                 2000
                                                          -----------------    -----------------    -----------------
<S>                                                        <C>                 <C>                  <C>
         Net income (loss) as reported                    $        932,116     $       (990,582)    $        179,271
         Deduct: Stock based compensation determined
            under the fair value based method for all
            rewards, net of tax                                   (131,000)            (147,000)            (164,000)
                                                          -----------------    -----------------    -----------------
         Pro forma net income (loss)                      $        801,116     $     (1,137,582)    $         15,271
                                                          =================    =================    =================

         Earnings per share:
             Basic - as reported                          $           0.26     $          (0.28)    $           0.05
                                                          =================    =================    =================
             Basic - pro forma                            $           0.22     $          (0.32)    $             --
                                                          =================    =================    =================
             Diluted - as reported                        $           0.24     $          (0.28)    $           0.05
                                                          =================    =================    =================
             Diluted - pro forma                          $           0.20     $          (0.32)    $             --
                                                          =================    =================    =================
</TABLE>

     INCOME TAXES - Income taxes are accounted for under the asset and liability
     method. Current income tax expense is the amount of income taxes expected
     to be payable for the current year. A deferred tax asset or liability is
     established for the expected future consequences resulting from the
     differences in the financial reporting and tax bases of assets and
     liabilities. Deferred income tax expense (benefit) is the net change during
     the year in the deferred income tax asset or liability. Valuation
     allowances are established when necessary to reduce deferred tax assets to
     the amount expected to be realized.

     DISCONTINUED OPERATIONS - In August 2001, the Financial Accounting
     Standards Board issued Statement of Financial Accounting Standards No. 144,
     Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144).
     SFAS 144 addresses financial accounting and reporting for the impairment or
     disposal of long-lived assets. This Statement supersedes FASB Statement No.
     121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets to Be Disposed Of, and the accounting and reporting provisions of
     APB Opinion No. 30, Reporting the Results of Operations-Reporting the
     Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
     and Infrequently Occurring Events and Transactions, for the disposal of a
     segment of a business (as previously defined in that Opinion). Under SFAS
     144, discontinued operations are no longer measured on a net realizable
     value basis, and future operating losses are no longer recognized



                                      F-11

<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     before they occur. The provisions of this Statement are effective for
     financial statements issued for fiscal years beginning after December 15,
     2001. The Company adopted SFAS 144 on January 1, 2002. In 2001, the Company
     calculated the loss on discontinued operations and the loss on disposal of
     discontinued operations in accordance with APB No. 30. Had the Company
     chose early adoption of the provisions of SFAS 144, the loss on disposal of
     discontinued operations, net of tax, would have been reduced by $71,761 for
     the year ended December 31, 2001 and the Company would have recorded a loss
     on discontinued operations, net of tax, of $42,632 for the year ended
     December 31, 2002.

     SEGMENT INFORMATION - The Company has one operating segment, the sale of
     custom souvenir and promotional products to various retail customers and
     Fortune 500 companies. These customers have similar characteristics in the
     nature of products sold, production processes and methods of distribution.
     As such, the Company's financial statements reflect this one reporting
     segment and no additional segment information has been provided.

     USE OF ESTIMATES - 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 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 reporting period. Significant estimates have been made by management
     with respect to the realization of the Company's deferred tax assets,
     accounts receivable reserves and the provision for discontinued and
     obsolete inventory. Actual results could differ from these estimates.

2.   DISCONTINUED OPERATIONS

     In December 2000, the Company entered into an agreement with Rawlings
     Sporting Goods Company Inc. ("Rawlings") for the exclusive global rights to
     sell golf clubs and golf related merchandise under the Rawlings brand name
     beginning January 1, 2001. In January 2001, the Company established a new
     Rawlings Golf division to design, develop, manufacture and market golf
     products under the Rawlings brand name. In November 2001, the Company made
     the decision to terminate its license with Rawlings and discontinue its
     Rawlings Golf operations.

     Operating results for the Rawlings Golf business up to November 13, 2001
     are included in the statements of operations as net loss from discontinued
     operations. Operating results subsequent to November 13, 2001 are included
     in the net loss on disposal of discontinued operations. Results for the
     discontinued operations are as follows:

<TABLE>
<CAPTION>
                                                                 2002                2001               2000
                                                            ----------------   -----------------  -----------------
<S>                                                         <C>                <C>                <C>
     Net sales                                                         --      $     224,532                 --
                                                            ================   =================  =================
     Loss on discontinued operations                                   --      $    (729,650)                --
     Income tax benefit                                                --           (245,000)                --
                                                            ----------------   -----------------  -----------------
     Net loss on discontinued operations                               --      $    (484,650)                --
                                                            ================   =================  =================
     Loss on disposal of discontinued operations                       --      $  (1,075,376)                --
     Income tax benefit                                                --           (446,000)                --
                                                            ----------------   -----------------  -----------------
     Net loss on disposal of discontinued operations                   --      $    (629,376)                --
                                                            ================   =================  =================
</TABLE>

     The loss on disposal of discontinued operations includes the disposal of
     the unamortized portion of the global rights fees, accrual of the license
     termination fee, disposal and write-down of inventory




                                      F-12

<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     and accrued interest expense on a $1.5 million term loan with U.S. Bank
     National Association. The balance of the discontinued operations reserve as
     of December 31, 2001, was $171,761, of which $147,471 is included in the
     accounts payable and accrued expenses on the balance sheet. The balance of
     the reserve for discontinued operations as of December 31, 2002 was $26,686
     of which $25,206 is included in the accounts payable and accrued expenses
     on the balance sheet.

3.   ACCOUNTS RECEIVABLE

     Accounts receivable consisted of the following at December 31, 2002 and
     2001:

<TABLE>
<CAPTION>
                                                                          2002                 2001
                                                                    -----------------    -----------------
<S>                                                                     <C>                  <C>
         Accounts receivable                                          $   4,328,418        $   4,339,004
         Less: allowance for bad debts                                     (198,154)            (198,441)
         Less: allowance for uncollectible receivables                     (266,248)            (234,807)
         Less: allowance for sales returns                                 (179,883)            (199,883)
                                                                    -----------------    -----------------
              Net accounts receivable                                 $   3,684,133        $   3,705,873
                                                                    =================    =================
</TABLE>

4.   INVENTORIES

     Inventories consisted of the following at December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                          2002                 2001
                                                                    -----------------    -----------------
<S>                                                                     <C>                  <C>
         Finished goods                                               $   2,817,140        $   2,018,335
         Raw material                                                     1,560,081            1,205,933
         Less: allowance for discontinued and obsolete inventory           (430,299)            (568,566)
                                                                    -----------------    -----------------

              Total                                                   $   3,946,922        $   2,655,702
                                                                    =================    =================
</TABLE>

5.   PROPERTY AND EQUIPMENT

     Property and equipment, inclusive of machinery and equipment under capital
     leases, less accumulated depreciation and amortization consisted of the
     following at December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                          2002                 2001
                                                                    -----------------    -----------------
<S>                                                                  <C>                  <C>
         Office equipment                                            $     614,670        $     578,200
         Computer equipment & software                                   1,301,547            1,135,765
         Show exhibits                                                     403,533              372,157
         Molds                                                             438,196              282,866
         Machinery and equipment                                         1,189,217            1,151,281
         Leasehold improvements                                          1,080,393            1,036,240
         Capital improvements in process                                    63,485                   --
                                                                    -----------------    -----------------
                                                                         5,091,041            4,556,509
         Less accumulated depreciation and amortization                 (2,887,872)          (2,331,403)
                                                                    -----------------    -----------------
                                                                      $  2,203,169         $  2,225,106
                                                                    =================    =================
</TABLE>

     Included in fixed assets is equipment acquired under capital leases in the
     amount of $426,967 and $576,640 as of December 31, 2002 and 2001,
     respectively. Accumulated amortization under these capital leases is
     $221,208 and 269,184 as of December 31, 2002 and 2001, respectively.



                                      F-13
<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6.   LINES OF CREDIT

     The Company's credit line with U.S. Bank National Association ("US Bank")
     expired on May 15, 2002. There were no outstanding borrowings under the US
     Bank credit line when it expired. The Company obtained a new credit line
     from Comerica Bank-California ("Comerica") on June 24, 2002. The Comerica
     credit line is limited to the lesser of $5 million or 80% of eligible
     accounts receivable, as defined in the loan agreement, and carries interest
     at the rate of the Comerica prime rate (4.25% as of December 31, 2002) plus
     0.5%. The credit line contains a special sublimit of $1.2 million that is
     reduced by $0.3 million on each anniversary of the loan agreement. On June
     26, 2002, the Company borrowed $1 million under the special sublimit to
     refinance the outstanding balance on its $1.5 million term loan with US
     Bank. The Company's assets collateralize the Comerica credit line. The loan
     agreement contains financial covenants applicable to the credit line
     requiring the Company to maintain a minimum current ratio of 2 to 1, a
     minimum quick ratio of 1.25 to 1, a maximum debt to worth ratio of 1 to 1,
     net income of more than $100,000 on a rolling six month basis and a minimum
     earnings before interest and taxes to interest expense ratio of 2 to 1. For
     purposes of calculating the financial covenant ratios, "current
     liabilities" include amounts outstanding under the credit line except for
     the special sublimit. The credit line matures on December 24, 2004. The
     Company is in compliance with the covenants as of December 31, 2002. At
     December 31, 2002, $0.67 million under the special sublimit was the only
     outstanding borrowings.

7.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consisted of the following at
December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                       2002                2001
                                                                 -----------------    ----------------
<S>                                                                 <C>                <C>
        Accounts payable                                            $ 1,867,852        $     972,059
        Accrued payroll and related                                     211,829              192,691
        Accrued commissions and bonuses                                 756,703              294,583
        Royalties payable                                                26,355               20,051
        Current reserve for discontinued operations                      25,206              147,472
        Accrued joint advertising costs                                 247,644              199,892
        Accrued other taxes                                               2,398               35,094
                                                                 -----------------    ----------------
                                                                    $ 3,137,987          $ 1,861,842
                                                                 =================    ================
</TABLE>

8.   COMMITMENTS AND CONTINGENCIES

     ROYALTIES - At December 31, 2002, the Company has commitments for minimum
     guaranteed royalties under licensing agreements through 2005 as follows:

            Years ending December 31,
        -----------------------------------
                       2003                   $    697,500
                       2004                        252,500
                       2005                        185,000
                                            -----------------
                                               $ 1,135,000
                                            =================



                                      F-14
<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     CAPITAL LEASES - The Company is obligated under various capital leases that
     expire at various dates through December 2007. Minimum annual payments
     including imputed interest under capital lease agreements are as follows at
     December 31, 2002:

                       Years ending December 31,
        ------------------------------------------------------
                                 2003                           $     89,166
                                 2004                                 75,757
                                 2005                                 47,526
                                 2006                                 21,479
                                 2007                                  5,161
                                                               -----------------
        Total minimum lease payments                                 239,089
        Less amount representing interest (at rates ranging
             from 9% to 10%)                                         (30,218)
                                                               -----------------
        Present value of minimum lease payments                      208,871
        Less current portion of capital leases                       (73,796)
                                                               -----------------
        Capital leases, net of current portion                   $   135,075
                                                               =================

     OPERATING LEASES AND RENTAL EXPENSE - The Company leases certain machinery,
     equipment and office and warehouse facilities under operating leases, which
     expire on various dates through 2010. The lease for the facilities includes
     a cost escalation clause, which allows for fixed rent increases at certain
     times during the leasing period, as well as a three month rent free period
     at the beginning of the lease. In accordance with SFAS No. 13, Accounting
     for Leases, the rent expense for the office and warehouse is recognized on
     a straight-line basis over the life of the lease. This has resulted in a
     deferred rent liability of $293,969 at December 31, 2002. Total rental
     expense charged to operations was $1,019,711 in 2002, $967,193 in 2001 and
     $856,138 in 2000. At December 31, 2002, the minimum future rental
     commitments under noncancelable leases payable over the remaining lives of
     the leases are:

                                                  Minimum future lease
        Years ending December 31,                    commitments
        -----------------------------------    ------------------------
                       2003                            $   1,012,597
                       2004                                1,032,554
                       2005                                1,051,755
                       2006                                1,073,666
                       2007                                1,104,342
                    Thereafter                             3,267,703
                                               ------------------------
                                                        $  8,542,617
                                               ========================

9.   EARNINGS PER COMMON SHARE

     Basic earnings per common share excludes dilution and is computed by
     dividing net income or loss by the weighted-average of common shares
     outstanding for the period. Diluted earnings per common share reflects the
     potential dilution that could occur if common stock options using the
     treasury stock method were exercised or converted into common stock.
     Potential common shares in the diluted earnings per common share are
     excluded in loss periods, as their effect would be anti-dilutive.



                                      F-15
<PAGE>

     Basic and diluted earnings per common share was computed as follows:

<TABLE>
<CAPTION>
                                                                          2002            2001            2000
                                                                     ------------------------------ ---------------
<S>                                                                   <C>            <C>              <C>
           Net income (loss)                                         $     932,116    $  (990,582)  $      179,271
                                                                     ==============   ============= ===============
           Weighted average shares for basic EPS                         3,598,134      3,579,516        3,576,472
                                                                     ==============   ============= ===============
           Basic net income (loss) per common share                  $        0.26    $     (0.28)  $         0.05
                                                                     ==============   ============= ===============

           Weighted average shares for basic EPS                         3,598,134      3,579,516        3,576,472
           Plus dilutive stock options                                     317,742             --          144,480
                                                                     --------------   ------------- ---------------
           Weighted average shares for diluted EPS                       3,915,876      3,579,516        3,720,952
                                                                     ==============   ============= ===============
           Diluted net income (loss) per common share                $        0.24          (0.28)  $         0.05
                                                                     ==============   ============= ===============
</TABLE>

         For the year ended December 31, 2002, 2001 and 2000 shares related to
         stock options of 124,700, 710,859 and 182,775, respectively, were
         excluded from the calculation of diluted earnings per common share, as
         the effect of their inclusion would be anti-dilutive.

10.  STOCKHOLDERS' EQUITY

     EMPLOYEE STOCK OPTION PLAN - In 1998, the Board of Directors of the Company
     adopted and the Company's stockholders subsequently approved the 1998 Stock
     Option Plan (the "1998 Plan"). The 1998 Plan provides for awards of common
     stock to employees and non-employee directors of the Company up to an
     aggregate of 800,000 shares of common stock.

     The 1998 Plan authorizes the issuance of incentive stock options ("ISOs")
     and non-qualified stock options ("NQSOs"). Under the 1998 Plan, officers,
     directors and key employees may be granted options to purchase the
     Company's common stock at no less than 100% of the market price on the date
     the option is granted. In general, options vest over a three-year period
     and are exercisable in three equal installments of the first, second and
     third anniversary dates of the option grant and have a maximum term of ten
     years. Certain options granted to senior executives have different vesting
     periods (see Note 11). The 1998 Plan also provided for the termination of
     the Company's 1994 Employee Stock Option Plan and the re-issuance of an
     identical number of options under the 1998 Plan, at the then current market
     price, to the holders of options under the 1994 Employee Stock Option Plan.

     A total of 19,500, 269,438 and 66,000 options were granted in 2002, 2001
     and 2000, respectively, under the 1998 Plan, which were fixed in nature, as
     the options have been granted at fair market value. As of December 31,
     2002, 800,000 options were authorized under the plan, 12,850 remain
     available for future grants.



                                      F-16
<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The following table summarizes information concerning all currently
     outstanding and exercisable options as of December 31, 2002:

<TABLE>
<CAPTION>
                                 Options outstanding                                     Options exercisable
        -----------------------------------------------------------------------    ---------------------------------
                                                 Weighted
                                Number           average          Weighted              Number          Weighted
             Range of        outstanding at     remaining         average            exercisable at     average
             exercise        December 31,      contractual        exercise             December 31,     exercise
              prices             2002          life (years)         price                 2002           prices
        ------------------ ----------------- ----------------- ----------------    ----------------- ---------------
<S>        <C>                    <C>              <C>              <C>                  <C>             <C>
           $1.00-$2.00            454,024          5.47             $1.58                330,222         $1.61
           $2.01-$3.00             33,334          4.17             $2.60                 33,334         $2.60
           $3.01-$5.00            104,667          4.28             $3.85                 86,166         $4.18
           $5.01-$7.00             87,700          6.56             $5.82                 87,367         $5.82
                           -----------------                                       -----------------
                                  679,725                                                537,089
                           =================                                       =================
</TABLE>

     The following table summarizes the Company's option activity for the years
     ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                                                                 Weighted                         Weighted
                                               1998 Plan         average           Other           average
                                                Options       exercise price      Options       exercise price
                                             --------------- ----------------- --------------- ----------------
<S>                                                <C>            <C>              <C>              <C>
      Outstanding at December 31, 1999             434,389        $2.65            86,200           $4.80
                                             --------------- ----------------- --------------- ----------------
           Granted                                  66,000        $3.96              --              --
           Exercised                               (12,496)       $1.82              --              --
           Canceled                                (88,170)       $4.62              --              --
                                             --------------- ----------------- --------------- ----------------
      Outstanding at December 31, 2000             399,723        $2.49            86,200           $4.80
                                             --------------- ----------------- --------------- ----------------
           Granted                                 269,438        $1.60              --              --
           Exercised                                (1,001)       $1.68              --              --
           Canceled                                (18,501)       $4.08           (25,000)          $4.20
                                             --------------- ----------------- --------------- ----------------
      Outstanding at December 31, 2001             649,659        $2.52            61,200           $5.05
                                             --------------- ----------------- --------------- ----------------
           Granted                                  19,500        $4.60              --              --
           Exercised                               (29,801)       $2.49              --              --
           Canceled                                (20,833)       $2.97              --              --
                                             --------------- ----------------- --------------- ----------------
      Outstanding at December 31, 2002             618,525        $2.33            61,200           $5.05
                                             ===============                   ===============
</TABLE>

     OTHER STOCK OPTIONS - On August 1, 1995, the Company entered into an
     agreement with ADR Management Group Ltd. ("ADR" and "ADR Agreement") for
     the purpose of providing the Company independent financial relations
     management services. Pursuant to the ADR Agreement, the Company agreed to
     pay ADR over the term of the agreement a monthly fee plus reasonable
     out-of-pocket expenses through July 1997. As further compensation, the
     Company granted to ADR options to purchase an aggregate of 75,000 shares of
     common stock of the Company at $5.25 per share. The options vested in
     amounts of 9,375 at the end of each three-month period following August 1,
     1995. As of December 31, 1997, 75,000 options issued under the stock option
     agreement were vested. In August 1997, the Company entered into a new
     agreement with ADR whereby ADR agreed to provide independent financial
     relations management services to the Company through July 31, 1998. In
     consideration of the services rendered by ADR, the Company granted ADR
     options to purchase an aggregate of 15,000 shares of common stock of the
     Company at $2.6875 per share. The options vested in amounts of 1,250 each
     month commencing September 1997 until and including August 1998, all of
     which were exercisable from the date of their vesting until August 2000.
     The Company terminated the ADR Agreement in 1999. In accordance with SFAS
     123, the Company valued the options at $16,200 using the Black-Scholes
     option-pricing model, of which $9,900 and $6,300 was recognized as
     compensation expense during 1998 and 1997, respectively. As of December 31,
     2002,



                                      F-17
<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     51,200 ADR stock options remained unexercised.

     On April 1, 1999, the Company entered into an agreement with Integrated
     Corporate Relations, Inc., ("ICR" and "ICR Agreement") for the purpose of
     providing the Company independent financial relations management services.
     Pursuant to the ICR Agreement, the Company agreed to pay ICR over the term
     of the agreement a monthly fee plus reasonable out-of-pocket expenses
     through March 31, 2001. As further compensation, the Company granted to ICR
     options to purchase an aggregate of 25,000 shares of common stock of the
     Company at $4.20 per share, 20% above of the market closing price of the
     Company's common stock on March 31, 1999. The options vested in amounts of
     3,125 at the end of each three-month period commencing June 30, 1999 until
     and including March 31, 2001 and were to be exercisable until March 31,
     2004. The Company terminated the ICR Agreement effective March 3, 2001.
     Under the termination provisions of the ICR stock option agreement, all
     stock options granted and vested under this agreement ceased to be
     exercisable after April 2, 2001. As of December 31, 2001, all options
     issued pursuant to the ICR Agreement expired. In accordance with SFAS 123,
     the Company valued the options at $30,250 using the Black-Scholes
     option-pricing model, of which $3,780, $15,120 and $11,340 was recognized
     as compensation expense during 2001, 2000 and 1999, respectively. There was
     no compensation expense recognized in 2002.

     On April 16, 1999, the Company entered into an agreement with W.A.B. Growth
     Equity Research, ("WAB" and "WAB Agreement") for the purpose of providing
     the Company independent financial relations management services. Pursuant
     to the WAB Agreement, the Company granted to WAB options to purchase an
     aggregate of 10,000 shares of common stock of the Company at $4.00 per
     share, 15% above the market closing price of the Company's common stock on
     April 16, 1999. The options vest in amounts of 2,500 on the 16th of each
     three-month period commencing April 16, 1999 until and including January
     16, 2000 and may be exercised until April 16, 2004. As of December 31,
     2002, 10,000 shares issued under the WAB Agreement were vested, of which no
     options had been exercised. In accordance with SFAS 123, the Company valued
     the options at $9,800 using the Black-Scholes option-pricing model, of
     which $652 and $9,148 was recognized as compensation expense during 2000
     and 1999, respectively.

     STOCKHOLDER RIGHTS PLAN - In August 1996, the Company implemented a
     stockholder rights plan to protect stockholders' rights in the event of a
     proposed takeover of the Company. Under the stockholder rights plan, each
     share of the Company's outstanding Common Stock carries one right to
     purchase one one-thousandth (1/1000) of Series A preferred stock (a
     "Right") at an exercise price of $30.00, subject to certain anti-dilution
     adjustments. Each Right entitles the holder, under certain circumstances,
     to purchase Common Stock of the Company or the acquiring company at a
     substantially discounted price ten days after a person or group publicly
     announces it has acquired or has tendered an offer for 15% or more of the
     Company's outstanding Common Stock. The Rights are redeemable by the
     Company at $.01 per Right and expire in 2006. The Company has 1,000,000
     shares of preferred stock authorized, of which 75,000 shares of Series A
     preferred stock have been reserved for issuance upon exercise of the
     Rights.

11.  TRANSACTIONS WITH RELATED PARTIES

     EMPLOYMENT AGREEMENTS - The Company has an employment agreement with
     Michael Favish, which provides that Mr. Favish will serve as Chief
     Executive Officer for a term of three years beginning August 10, 2002. His
     base salary was $250,000, $230,000 and $210,000 during 2002, 2001 and 2000,
     respectively. In May 2001, Mr. Favish was granted 23,000 stock options,
     with an exercise price of $2.00 per share. No options were granted to Mr.
     Favish in 2002 or 2000. All options vest over a three-year period and have
     a ten-year life from the date of grant.



                                      F-18
<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The Company has an employment agreement with Scott P. Dickey which provides
     that Mr. Dickey will serve as President and Chief Operating Officer for a
     two-year term commencing on April 2, 2001 and continuing until April 1,
     2003. Mr. Dickey's annual base salary is $200,000. Mr. Dickey is also
     entitled to a bonus based on a bonus compensation plan jointly established
     between the Board and Mr. Dickey. Under the terms of his agreement, in
     March 2001, Mr. Dickey was granted 125,000 stock options, with an exercise
     price of $1.12 per share, and in June 2001 Mr. Dickey was granted 35,938
     stock options, with an exercise price of $1.61 per share. The above options
     were granted at fair market value at the date of grant. 50% of the options
     vested on April 1, 2002 and 50% of the options vest on April 1, 2003. All
     of the options have a ten-year life from the date of grant.

12.  DEFINED CONTRIBUTION PLAN

     The Company has a defined contribution plan pursuant to Section 401(k) of
     the Internal Revenue Code that is available to substantially all employees.
     In 2002, 2001 and 2000 the Company matched $0.50 of each $1.00 of employee
     contributions up to 2%, 2% and 3%, respectively, of covered payroll.
     Employees are automatically fully vested in their personal contribution
     amounts and vest in the Company's contribution ratably over a five-year
     period. The Company's contribution expense for the years ended December 31,
     2002, 2001 and 2000 was $81,648, $60,249 and $46,829, respectively.

13.  INCOME TAXES

     The components of income tax expense (benefit) were as follows for the
     years ended December 31, 2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                      Federal               State                Total
                                  -----------------    -----------------    -----------------
<S>               <C>               <C>                  <C>                 <C>
         2002:
                  Current           $   471,560          $   130,000         $    601,560
                  Deferred               (8,560)             (17,000)             (25,560)
                                  -----------------    -----------------    -----------------
                                    $   463,000          $   113,000         $    576,000
                                  =================    =================    =================

         2001:
         Continuing Operations
                  Current           $        --                   --         $         --
                  Deferred               66,000          $   (24,000)              42,000
                                  -----------------    -----------------    -----------------
                                    $    66,000          $   (24,000)        $     42,000
                                  =================    =================    =================

         Discontinued Operations
                  Current           $        --          $        --         $         --
                  Deferred             (217,000)             (28,000)            (245,000)
                                  -----------------    -----------------    -----------------
                                    $  (217,000)         $   (28,000)        $   (245,000)
                                  =================    =================    =================

         Loss on Disposal of Discontinued Operations
                  Current           $        --          $        --         $         --
                  Deferred             (388,000)             (58,000)            (446,000)
                                  -----------------    -----------------    -----------------
                                    $  (388,000)         $   (58,000)        $   (446,000)
                                  =================    =================    =================
</TABLE>



                                      F-19
<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
<S>               <C>                <C>                 <C>               <C>
         Total
                  Current           $        --          $        --          $        --
                  Deferred             (539,000)            (110,000)            (649,000)
                                  -----------------    -----------------    -----------------
                                    $  (539,000)         $  (110,000)         $  (649,000)
                                  =================    =================    =================

         2000:
                  Current           $   (31,000)         $    10,000          $   (21,000)
                  Deferred               89,000               18,000              107,000
                                  -----------------    -----------------    -----------------
                                    $    58,000          $    28,000          $    86,000
                                  =================    =================    =================
</TABLE>

     The Company incurred a net operating loss in 2000 of $170,000 for federal
     tax purposes only, which was primarily due to the excess of the tax loss
     over the book loss on the disposition of fixed assets related to the
     Company's facility move in 2000. Income tax benefits recognized during 2001
     relate primarily to the net operating loss of $1.2 million generated by its
     discontinued Rawlings Golf operations. The Company's 2000 net operating
     loss was carried back to 1999 for federal tax purposes. The Company carried
     back the 2001 net operating loss to 1999 for federal tax purposes. For
     California tax purposes, the 2001 net operating loss cannot be carried back
     and the carryover is limited to 55% and cannot be utilized until 2004.
     Approximately $668,000 of the 2001 net operating loss for California tax
     purposes will carryforward to future years and will expire in 2014.
     Approximately $10,000 of the 2001 net operating loss for Federal tax
     purposes will carryforward to future years.

     The components of net deferred tax assets were as follows at December 31,
     2002 and 2001:

<TABLE>
<CAPTION>
                                                               2002                 2001
                                                         -----------------    -----------------
<S>                                                       <C>                 <C>
         Deferred tax assets:
              Net operating loss                          $      34,560       $      108,000
              Employee benefit plans                             64,000               56,000
              Uniform capitalization of inventory cost          133,000              110,000
              Accounts receivable reserves                      377,000              271,000
              Inventory reserves                                184,000              244,000
              Impairment loss                                    46,000               46,000
              Co-op reserves                                    106,000               84,000
              Discontinued operations reserves                   11,000               74,000
              State income taxes                                     --                5,000
                                                         -----------------    -----------------
                  Total gross deferred tax assets               955,560              998,000
                                                         -----------------    -----------------
         Deferred tax liabilities:
              Depreciation                                       69,000               94,000
              State income taxes                                 31,000               74,000
                                                         -----------------    -----------------
                  Total deferred tax liability                  100,000              168,000
                                                         -----------------    -----------------
                      Net deferred tax asset                $   855,560          $   830,000
                                                         =================    =================

         Net current deferred tax assets                    $   908,560          $   951,000
         Net non-current deferred tax liabilities               (53,000)            (121,000)
                                                         -----------------    -----------------
              Net deferred tax asset                        $   855,560          $   830,000
                                                         =================    =================
</TABLE>

     The Company evaluates a variety of factors in determining the amount of the
     deferred income tax assets to be recognized including the Company's
     earnings history and its near-term earnings expectations. The net operating
     loss incurred in 2001 was due to the discontinued Rawlings Golf operation.
     The 2001 operating loss is unrelated to the future ongoing operations of
     the Company. Based upon the book net income realized from continuing
     operations in 2002 and 2001 and the expectation of a continuing profitable
     business, management believes it is more likely than not that future
     taxable income will be sufficient to realize all of the Company's existing
     deferred tax assets on future tax returns and therefore has not recorded a
     valuation allowance.



                                      F-20
<PAGE>
                               FOTOBALL USA, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The actual tax expense (benefit) differs from the expected tax expense
     (benefit), computed by applying the Federal statuatory tax rate of 34% to
     income before income taxes, as follows:


<TABLE>
<CAPTION>
                                                                2002                  2001                 2000
                                                          -----------------    -----------------    -----------------
<S>                                                        <C>                 <C>                   <C>
         Expected statutory tax expense (benefit)          $    513,000        $    (557,000)        $     90,000
         Net tax effect of permanent differences                 19,000               15,000                9,000
         State income tax expense (benefit), net of
              Federal tax effect                                 75,000              (73,000)              18,000
         Adjustment for prior year over accrual                 (31,000)             (34,000)             (31,000)
                                                          -----------------    -----------------    -----------------
         Actual tax expense (benefit)                        $  576,000          $  (649,000)         $    86,000
                                                          =================    =================    =================
</TABLE>

14.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         Year ended December 31,2002
                                            ---------------------------------------------------------------------------------------
                                                 First             Second        Third Quarter        Fourth
                                                Quarter            Quarter                            Quarter            Total
                                            ----------------- ---------------- ----------------- ----------------- ----------------
<S>                                            <C>               <C>               <C>             <C>                <C>
 Net sales                                     $ 10,704,270      $ 14,274,321      $11,113,641     $   7,903,735      $ 43,995,967
 Gross profit                                     3,865,356         5,138,850        4,154,510         3,123,526        16,282,242
 Income from continuing operations                  179,504           456,209          270,838            25,565           932,116
 Net income                                    $    179,504      $    456,209      $   270,838     $      25,565      $    932,116

 Net income per common share:
          Basic                                $       0.05      $       0.13      $      0.08     $        0.01      $       0.26
          Diluted                              $       0.05      $       0.12      $      0.07     $        0.01      $       0.24
</TABLE>

<TABLE>
<CAPTION>
                                                                         Year ended December 31,2001
                                            ---------------------------------------------------------------------------------------
                                                 First             Second        Third Quarter         Fourth
                                                Quarter            Quarter                             Quarter           Total
                                            ----------------- ---------------- ----------------- ----------------- ----------------
<S>                                            <C>               <C>               <C>             <C>                <C>
 Net sales                                     $  5,580,566      $  7,322,369     $ 10,756,652     $   7,972,344      $ 31,631,931
 Gross profit                                     1,806,059         2,359,670        4,066,179         3,235,602        11,467,510
 Income (loss) from continuing operations          (445,553)         (294,935)         606,404           257,528           123,444
 Loss from discontinued operations
    net of tax benefit                             (123,707)         (200,625)         (73,007)          (87,311)         (484,650)
 Loss on disposal of discontinued
    operations net of tax benefit                        --                --               --          (629,376)         (629,376)
 Net income (loss)                             $   (569,260)     $   (495,560)    $    533,397     $    (459,159)     $   (990,582)


 Income (loss) from continuing
 operatons per common share:
          Basic                                $      (0.12)     $      (0.08)    $       0.17     $        0.07      $       0.03
          Diluted                              $      (0.12)     $      (0.08)    $       0.16     $        0.07      $       0.03
 Net income (loss) per common share:
          Basic                                $      (0.16)     $      (0.14)    $       0.15     $       (0.13)     $      (0.28)
          Diluted                              $      (0.16)     $      (0.14)    $       0.14     $       (0.13)     $      (0.28)

</TABLE>



                                      F-21
<PAGE>

                               FOTOBALL USA, INC.
                                SUPPLEMENTAL DATA

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                           Balance at       Charged to
                                                           beginning         costs &                            Balance at
Description                                                 of year          expenses        Deductions *      end of year
--------------------------------------------------------- -------------    -------------    ---------------    -------------
<S>                                                       <C>              <C>              <C>                <C>
Year ended December 31, 2002
  Allowance for bad debts                                    $ 198,441         $ 50,000           $ 50,287         $198,154
  Allowance for uncollectible receivables                      234,807          262,784            231,343          266,248
  Allowance for sales returns                                  199,883          (20,000)                --          179,883
  Allowance for discontinued and obsolete inventory            568,566          205,000            343,267          430,299

Year ended December 31, 2001
  Allowance for bad debt                                     $ 163,188         $278,300           $243,047         $198,441
  Allowance for uncollectible receivables                      130,614          227,500            123,307          234,807
  Allowance for sales returns                                  223,423          (22,308)             1,232          199,883
  Allowance for discontinued and obsolete inventory            485,065          892,124            808,628          568,566

Year ended December 31, 2000
  Allowance for bad debt                                     $ 250,000         $ 25,200           $112,012         $163,188
  Allowance for uncollectible receivables                      250,000               --            119,386          130,614
  Allowance for sales returns                                  150,000           73,423                 --          223,423
  Allowance for discontinued and obsolete inventory            276,730          373,209            164,874          485,065

*Amounts in column represent accrual usage.
</TABLE>

                  See accompanying independent auditors' report



                                      F-22
<PAGE>





FOTOBALL USA, INC.


                                INDEX TO EXHIBITS

EXHIBIT
NUMBER                   DESCRIPTION
--------                 -----------

10.1(5)                  License Agreement with Major League Baseball Players
                         Association dated January 8, 2003.

10.1(6)                  License Agreement with Major League Baseball
                         Properties, Inc. dated February 26, 2003.

23.1                     Consent of Good Swartz Brown & Berns LLP, independent
                         public accountants.


23.2                     Consent of KPMG LLP, independent public accountants.

99.1                     Certifications Pursuant To 18 U.S.C. Section 1350, as
                         Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                         Act Of 2002.