U.S. SECURITIES AND EXCHANGE COMMISSION

                          WASHINGTON,  D.C.  20549
                               _______________
                                FORM  10-KSB
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange
    Act of 1934
                  For the fiscal year ended December 31, 1998
[ ] 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                          (I.R.S. Employer
  of incorporation or organization)                    identification No.)

                3738 Ruffin Road, San Diego, California     92123
                --------------------------------------------------
               (Address of principal executive offices)  (Zip Code)

                   Issuer's telephone number:  (619) 467-9900
                                 _______________

          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
                    Redeemable Common Stock Purchase Warrant
                          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 during the past 12 
months (or for such shorter period that the registrant was required to file 
such reports), and (2) has been subject to such filing requirements for the 
past 90 days.
                                 Yes (X)   No ( )

    Check if disclosure of delinquent filers in response to Item 405 of 
Regulation S-B 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-KSB or any amendment to this Form 10-KSB.  [    ]

    The Issuer's revenues for the fiscal year ended December 31, 1998
were $19,147,728.

    The aggregate market value of the Issuer's Common Stock held
by non-affiliates, computed by reference to the average bid and asked 
prices of such stock, as of March  22, 1999, was $ 7,673,029.

    As of March 22, 1999, the Company had 2,699,242 shares of Common
Stock issued and outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Proxy Statement for the Company's Annual
Meeting of Stockholders to be held on May 18, 1999 are incorporated by 
reference into Part III of this Form 10-KSB.

    Transitional Small Business Disclosure Format:  Yes ( )   No (X)



























                                       1<PAGE>
  

                                    PART I

Item 1.	Description of Business 

General

    Fotoball USA, Inc., a Delaware corporation (the "Company"),
designs, develops, manufactures and markets high quality custom sports 
products which are sold in the licensed product retail market through 
independent manufacturers' representatives and directly to a nationwide 
network of over 2,000 retailers including Walmart, Footlocker, J.C. 
Penney, Kmart, Target, Toys R Us, Modell's, Sears and The Sports 
Authority.  Additionally, the Company designs, develops and manufactures
high quality custom sports and non-sports related products for promotional
programs.  The Company also sells non-licensed specialty sports products
to corporations for resale or promotional use, including sales to amusement
park and entertainment related companies.  The Company currently holds
licenses with Major League Baseball Properties ("MLBP"); the Major League
Baseball Players Association ("MLBPA"); the National Association of
Professional Baseball Leagues, Inc. (representing professional minor league
baseball; collectively, "Professional Baseball"); the National Football
League Properties, Inc. and NFL Players Inc. (collectively "NFL"); National
Hockey League Enterprises and NHL Players' Association (collectively "NHL");
Major League Soccer ("MLS"); over 300 colleges and universities ("Colleges");
and certain entertainment properties including Nickelodeon's "Rugrats" 
characters.  Pursuant to these licenses, the Company has the right to use, 
for commercial purposes, the names and logos of sports leagues, teams, 
colleges and universities and the likenesses of certain sports figures and 
cartoon characters.

    The Company's business is segregated into two distinct types of 
customers: its promotions customers, to whom the Company sells custom-
designed products directly to companies, and its retail customers which 
includes both the sale of licensed products directly to mass merchants, 
sports teams and concessionaires (its "national retail sales" customer) and 
the sale of non-licensed specialty sports products to amusement park and 
entertainment related companies for resale and promotional use (its 
"entertainment" customer).

    The Company's promotions customers, which include large corporations such
as General Mills, Castrol, Mastercard and McDonalds, purchase the Company's
products for use in promotional campaigns and in connection with their
sponsorship of professional sports teams.  The Company provides its promotions
customers with a wide range of design, product development and manufacturing
services. These services include assisting customers in the negotiation of
corporate sponsorships with professional sports teams and their associations,
in designing and developing promotions and in procuring product licenses and
authorizations. The Company is responsible for all phases of production, 
including creative design, manufacturing, quality control, packaging and 
shipping.




                                       2<PAGE>

    The Company's national retail sales represents a customer base of 
over 2,000 retailers, including selected department stores and mass 
merchants (including Walmart, Footlocker, J.C. Penney, Kmart, Target, 
Toys R Us, Modell's, Sears and The Sports Authority), airport and hotel 
concessionaires (including Paradies, Duty Free Shops, Host Marriott and 
the Del-Star Group), various licensed sports specialty and sporting goods 
chains, various consumer catalogs and Professional Baseball stadiums 
(including all 30 Major League Baseball stadiums and 110 professional 
minor league baseball stadiums).  The Company's entertainment business 
designs, develops and manufactures specialty sports products for large 
corporations such as Walt Disney, Planet Hollywood, Warner Bros. and 
Six Flags.

    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 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 the Company 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 products with general 
wholesale prices ranging from $1.95 to $14.95 per item. 

    The following is a description of each of the Company's 1999 product lines:
    
Baseball:

    The Company uses a synthetic leather, official size and weight baseball on
which it prints the various images. The baseball product line includes:
baseball featuring a players' image and statistics; embroidered baseball;
logo team baseball featuring logos of all 30 Major League Baseball teams;
mini-glove and baseball gift sets; specialty baseball including mini-hanging
baseball, and inaugural baseball with snake skin design; soft cast vinyl
polyester filled baseball licensed by Colleges and Professional Baseball and
promotional baseball custom printed and used for promotion.

Football:

    The Company uses a 6.5-inch football with brown synthetic,
pebble finish leather on three panels and white synthetic leather on the 
fourth panel for its miniature football. The Company uses a full-size 
football constructed of synthetic leather for both retail and promotional 
sales and a youth size vulcanized rubber football for colleges.  The 
football product line includes: Teamball TM and NFL Player Fotoballr; 
mini-football featuring NFL team logos and full color images of NFL 
players; full-size football featuring university or college logos; NFL 
Souvenir full-size football featuring team and Super Bowl logos and NFL 
marks produced in limited edition; performance/full-size football featuring 
color images for specialty retailers such as Walt Disney and WB Sport 
and promotional full-size and miniature football custom-printed and used 
for promotions.
                                       3<PAGE>


Basketball:

    The Company uses a 16-inch circumference basketball with high-
grade synthetic leather finish on six panels and white synthetic leather on 
two panels for its miniature basketballs. The Company uses a full-size 
basketball constructed of vulcanized rubber for its brand licensed and 
college product line and a full-size basketball constructed of synthetic 
leather.  The basketball product line includes: University Teamballr made 
from synthetic leather and both full and youth size vulcanized rubber 
basketball featuring a full-color image of a university or college logo and 
nickname; National Basketball Association ("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 
set with backboard featuring college logos combined with a mini-
basketball; performance/full-size basketball featuring full-color images for 
specialty retailers; and promotional basketball 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 synthetic leather soccer ball for its
miniature soccer ball. The Company uses a full-size soccer ball 
constructed of vulcanized rubber for its brand licensed products. The 
soccer product line includes: soccer ball featuring MLS team logos, player 
images and player facsimile autographs; performance/full-size soccer ball 
featuring color images for specialty retailers; and promotional soccer ball 
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, player images and player facsimile autographs packaged in a 
mini net; chrome puck featuring Chromium GraphicsT process designs on 
a disk displayed in a hockey net; and college puck featuring a full color 
image of a university or college logo.

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 
such as Planet Hollywood and Official All Star Cafe.  The lapel pin 
product line includes: MLB Lapel Pin including glow in the dark, flexible 
and mood lapel pin licensed by MLB, featuring team logos; National 
Collegiate Athletic Association ("NCAA") lapel pin for NCAA 
championship series and Final FourT tournament licensed by the NCAA; 
and promotional pin custom manufactured and used for corporate 
promotions.

                                        
                                       4<PAGE>

Playground Ball:

    The company uses a soft vulcanized rubber ball in various sizes
for its entertainment-related licensed products such as for Nickelodeon's 
"Rugrats" characters.  The Company uses a full-size playground ball for 
its new MLB team logo playground ball featuring all 30 MLB teams.

Softee Ball:

    The Company uses polyester-filled soft synthetic leather for its
"softee" sport ball.  The softee product line includes a Teamball 
basketball featuring college and minor league team logos and promotional 
miniature football and baseball custom printed and used for promotions.

Manufacturing, Supply and Distribution

    Significant portions of all raw materials used in the production of
the Company's retail products are purchased from unaffiliated 
manufacturers in the Far East.  An increasingly greater percentage of the 
Company's retail products are manufactured overseas, requiring only 
inflation and packaging of the products to be completed at the Company's 
San Diego, California facility.  Additionally, the majority of the 
Company's promotions products are manufactured according to Company 
and customer specifications by these same unaffiliated manufacturers.  In 
1998, the Company purchased approximately 87% of its raw materials 
and finished retail and promotions goods from six vendors located in 
China, with two manufacturers accounting for 77% of total raw materials 
and finished goods purchased. The imprinting process, which involves the 
application of an image onto the blank ball, is performed either at the 
Company's San Diego facility or in China, depending upon the complexity 
of the printing process required.  The complex four-color process is 
performed exclusively at the San Diego facility and the less sophisticated 
printing can be performed either at the San Diego facility or in China.  
The Company is increasingly shifting the imprinting of its products, 
including the printing and manufacturing of all vulcanized rubber 
products and the application of various processes such as debossing and 
foils, to vendors located in China to capitalize on significantly lower 
manufacturing costs. The Company's senior management periodically 
visits its suppliers to supervise the manufacturing of its products and to 
ensure compliance with the Company's quality control standards and 
specifications. The Company is not a party to any written contract with 
any supplier and relies on its long-standing relationships to ensure quality, 
responsiveness and efficiency. All of the Company's products 
manufactured abroad are paid for in United States dollars.

    Foreign manufacturing is subject to a number of risks, including 
production and transportation delays and interruptions, political and 
economic disruptions, the imposition of tariffs, quotas and other import or 
export controls, and changes in government policies. China currently 
enjoys most favored nation ("MFN") trading status with the United States, 
although there can be no assurance that China will continue to enjoy MFN 
trading status in the future or that conditions on China's MFN status will 
not be imposed. Any conditions imposed by the President of the United 
States and any legislation in the United States revoking or placing further 

                                       5<PAGE>
                         
conditions on China's MFN trading status could have a material adverse
impact on the cost of all of the Company's products because products 
originating from China could be subjected to substantially higher rates of 
duty. Although alternative suppliers may be available in other countries at 
competitive prices, and the Company continues to evaluate their ability to 
compete in terms of cost, quality, production capacity and other 
considerations, there can be no assurance that the Company would be able 
to find alternative suppliers in a timely manner or that such suppliers 
would meet the Company's cost, quality or production capability  standards.

License Agreements

    The Company's business is based primarily upon its use of the
insignia, logos, names, colors, likenesses and other identifying marks and 
images on many of its products pursuant to license arrangements with the 
NFL, Professional Baseball, and, to a lesser extent, Colleges.  The 
Company's licensing arrangements expire at various times through March 
31, 2000.  The Company may acquire other 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 material licenses, particularly with the NFL 
or Professional Baseball  could have a material adverse effect on the 
Company's business. 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 on collectible 
miniature footballs in the United States 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 the names, likenesses, portraits, pictures, photographs, 
signatures and biographical information of the NFL Quarterback ClubT 
and its members ("Quarterback Club" license). During 1998 the Company 
also received from NFLP the right to utilize team and league logos on 
limited edition, collectible, full-size, synthetic-leather footballs.  The
terms of the licenses extend through March 31, 2000.  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 agreements 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 on regulation-
size baseballs, and mini-gloves sold 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, likenesses, 
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 a commercial agreement with the MLBPA. The term of 
the license extends through December 31, 1999.  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 agreements with the MLBPA 
upon acceptable terms at its expiration.

                                       6<PAGE>

    The Company was granted by Major League Baseball Properties, 
Inc. ("MLBP") the non-exclusive right to utilize on regulation-size 
baseballs, mini gloves, mini leather baseballs, playground balls and 
certain lapel pins sold 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, 1999. 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 agreements with the MLBP upon acceptable 
terms at its expiration.

    Historically, the Company's 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 impact on the Company's sales and 
earnings.

Other Considerations

    Dependence on Promotions Business - The Company's
promotions business depends primarily upon a series of one-time projects 
with its customers. In prior years, the Company's promotions business 
contributed the largest percentage of the Company's total sales and 
earnings and as such resulted in significant reliance upon generating 
promotion sales sufficient to operate profitably.  The large increase in the 
Company's retail business in 1998 reduced the importance of the 
promotions business in determining the Company's profitability.  During 
the year ended December 31, 1998, 25% of the Company's sales was 
derived from promotions, of which one customer accounted for aggregate 
sales of $1,383,000 or 7% of total sales.  During the year ended 
December 31, 1997, 33% of the Company's sales was derived from 
promotions, of which one customer accounted for aggregate sales of 
approximately $2,438,000 or 20% of total sales.  The Company expects 
the total contribution of promotion sales to aggregate sales will continue 
to decrease in the future as a result of the continued growth of the 
Company's retail sales and expanding opportunities, such as within the 
amusement and entertainment industries.

    Variability of Gross Margins - Historically, the Company has realized
higher gross margins on its retail sales as compared to promotions sales.
In 1997, the Company realized gross margins of 36%, excluding a $1,175,000
provision for discontinued and excess inventory.  In 1998, the Company
realized gross margins of 39%.  The increase was primarily due to the greater
concentration of higher margin retail sales in 1998 as compared to 1997.  The
Company's gross margins fluctuate, particularly between quarters, based in
part on the concentration of promotions and retail sales during the reporting
period.  The type of product sold, the size of the promotion and extent of
competition also create variability in realized gross margins.

    Variability of Operating Results; Seasonality; Dependence Upon Baseball
Related Sales - The Company has historically experienced significant
quarter-to-quarter variability in its sales and net income.  This

                                       7<PAGE>

was due in part to the seasonality of its licensed sports product business
combined with a significant concentration of its business from baseball. 
The second factor which in prior years significantly contributed to the 
variability of the Company's operations was its dependence on promotions 
business as more fully explained above.  The Company realized increasing 
sales and profitability in each quarter of 1998 primarily due to significant 
increases in its retail businesses.  The Company anticipates that in future 
periods, retail sales will continue to account for a greater percentage of 
aggregate sales and therefore less variability of operating results. 

Dependence Upon Key Personnel - The success of the Company is largely
dependent on the personal efforts of Michael Favish, its President and
Chief Executive Officer.  Mr. Favish has entered into a five-year
employment agreement with the Company, commencing on August 11, 1994,
which, among other things, precludes Mr. Favish from competing with
the Company for a period of two years following termination of his
employment with the Company.  The loss of the services of Mr. Favish
would have a material adverse effect on the Company's business and
prospects.  The Company and Mr. Favish are discussing an extension of
Mr. Favish's employment agreement.  The Company maintains "key man" life
insurance on the life of Michael Favish in the amount of $1,000,000.  

Backlog

    The Company's backlog of orders was $985,000 and $1,570,000
as of March 1, 1998 and 1999, respectively. The 1998 and 1999 backlog 
represents various corporate promotions and specialty retail orders.  The 
Company's backlog of orders, which is deemed to be in general 
promotional orders and certain specialty product retail sales, was 
historically considered a meaningful measure of the Company's future 
prospects because of the Company's past reliance upon promotional sales 
to generate operating profits.  The contribution of promotion sales to 
aggregate sales has decreased considerably since 1997.  Additionally, 
retail sales, which are processed within one to four weeks after receipt of 
an order and are therefore generally not deemed part of the Company's 
backlog, now account for the majority of the Company's total sales.  As 
such, and given its expectation that retail sales in future periods will 
continue to represent a greater percentage of the Company's aggregate 
sales, the backlog will become even less indicative of future revenues or 
earnings.

Competition and Technological Change

Product

    The promotions 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 and marketing 
and manufacturing capabilities than the Company.

    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 

                                       8<PAGE>

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 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's expansion into recreational 
vulcanized rubber sports balls and broadened licensed product lines will 
result in substantially more competition within these product categories 
due to a greater number of well-established companies, including Franklin 
Sports Inc., Baden Sports Inc. ("Baden"), Play by Play Inc., and Wilson 
Sporting Goods Co.  The Company also competes directly with Rawlings 
Sporting Goods Company, Inc. ("Rawlings") in the team logo baseball 
business and for certain promotional baseball programs, as noted below.  

    The technology currently being used by the Company has 
contributed to restricting direct competition of its product lines. The future 
success of the Company will be dependent, in part, upon its proprietary 
printing process and ability to keep pace with advancements in printing 
and graphic designs. There can be no assurance that new printing 
technology will not be developed that renders the Company's current 
printing process and products obsolete or inferior or that other 
competitors will not develop the technology currently used by the 
Company.  The future success of the Company increasingly is dependent 
upon the creativity of its artists in product design, and its ability to 
reproduce these designs onto sports products using highly effective 
overseas suppliers.

    The domestic promotions business is highly competitive.  The 
Company competes frequently with the same companies as in its licensed 
sports product business, particularly Baden and Rawlings.  Additionally, 
a variety of companies that 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 
results in a competitive advantage.  The Company's competitors include 
companies that have significantly greater financial and other resources 
than does 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 photographic imaging and processing, its strong relationships 
with its licensors, its price points, and the 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 manufactured in China.

                                      9<PAGE>

Software

    The Company has prepared a plan to become Year 2000 compliant.  Pursuant
to the Company's Year 2000 plan, the Company is currently evaluating its
information technology ("IT") and non-IT computerized systems to assure that
the transition to a Year 2000 compliant system will not disrupt the Company's
operations.  The Company has upgraded its accounting and manufacturing
software systems to achieve further productivity and cost improvements.
These new software systems are Year 2000 compliant.  The Company has also
recently completed the testing of its computer hardware systems, all of 
which are Year 2000 compliant.  The Company believes that all systems 
necessary to manage the business effectively will be replaced, modified or 
upgraded before the Year 2000.  The costs of achieving Year 2000 
compliance are not expected to have a material impact on the Company's 
business, operations or its financial condition.

    The Company is also evaluating the systems of its key customers
and suppliers to ensure that these companies are Year 2000 compliant.  
The cost of this evaluation is expected to be nominal.  In the event that its 
current suppliers are either unable to certify that they will be Year 2000 
compliant by mid 1999 or unable to give the Company reasonable 
assurance that Year 2000 issues will have no material adverse impact on 
their operations, then the Company will review its alternatives with 
respect to other suppliers.  There can be no assurance that the Company 
will be able to find suppliers that are acceptable to the Company.  In the 
event that its key customers are unable to certify that they will be Year 
2000 compliant by mid 1999, the Company will be assessing the accounts 
receivable collection risk of such key customers.

Trademarks, Proprietary Information and Patents

    Fotoball is a registered trademark of the Company. The Company believes
that Fotoball is the best known brand name for baseballs and other sports
balls with imprinted color images. The Company also uses brand names, such
as Teamball, Fotopuck and Major League Expressions, which are not registered
with the U.S. Patent and Trademark Office. The Company considers the
Fotoball trademark to be material to its business.

    The Company is able to successfully reproduce an image, with all 
its half tones, on its products with detail and accuracy, using the 
Company's proprietary printing process.  This process was developed by 
the Company by combining several pre-existing techniques that are used 
in other similar industries. To the Company's knowledge, no other 
company currently has the ability to perform the complete process. The 
Company does not rely upon any material patents or licensed technology 
in the operation of its business. 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 not considered significant.

                                       10<PAGE>

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 factories and the 
retention of independent testing laboratories) to ensure compliance with 
applicable laws.  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, 
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 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 is 
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, 
its results of operations or its liquidity.  The cost of compliance with 
environmental laws and regulations are not considered significant.

Employees

    As of March 1, 1999, the Company employed 86 persons, all on a
full-time basis, including seven in executive positions, seven in sales, six 
in graphic production, 22 in administrative support positions and 44 in 

                                      11<PAGE>

factory production and shipping. None of the Company's employees are
covered by a collective bargaining agreement. The Company's relationship 
with its employees is satisfactory.

Item 2. Description of Property

    The Company's headquarters and warehouses are located in
approximately 86,000 square feet of leased space at 3738 Ruffin Road 
and 4000 Ruffin Road, San Diego, California 92123. The headquarters 
are leased from an unaffiliated party under a seven-year lease agreement 
which commenced in April 1994 for a monthly rent increasing 
incrementally from $8,800 to $18,710, together with certain common area 
expenses, during the term of the lease.  In July 1997, the Company began 
leasing 23,000 square feet of additional warehousing space from an 
unaffiliated party under a one-year lease agreement for a monthly rent of 
$9,913.  In May 1998 and March 1999, the Company added 19,000 and 
18,000 square feet, respectively, of additional warehousing space at its 
4000 Ruffin Road facility.  The Company now has approximately 60,000 
square feet of warehousing space, which expires in July 2001, including a 
one-year renewal option at a monthly rent of $26,422.  The Company 
anticipates that its warehouse space will meet its space requirements for 
the foreseeable future.  The Company may need to seek additional office 
space in the near term as its sales and staffing requirements increase.

Item 3.	Legal Proceedings

    The Company is not a party to any material litigation or legal
proceeding, and none of the Company's products has ever been the subject 
of a safety or quality recall.

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

    The Company did not submit any matter to a vote of security
holders during the fourth quarter of the year ended December 31, 1998.

                                    Part II

Item 5.	Market for Common Equity and Related Stockholder Matters

    The Company's common stock ("Common Stock") and redeemable Common Stock
purchase warrants ("Warrants") are traded over-the-counter on the Nasdaq
National Market.  The following table sets forth the range of trade prices
for the Common Stock and Warrants 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. 

                         SYMBOL              HIGH            LOW
                         ------              ----            ---
Common Stock:            (FUSA)
  1997
       First Quarter                         $ 6.25         $ 3.88
       Second Quarter                        $ 4.50         $ 2.88
       Third Quarter                         $ 3.38         $ 2.13
       Fourth Quarter                        $ 2.75         $ 1.13

                                      12<PAGE>

  1998
       First Quarter                         $ 1.75         $ 1.00
       Second Quarter                        $ 3.25         $ 1.38
       Third Quarter                         $ 3.19         $ 1.63
       Fourth Quarter                        $ 3.38         $ 1.88

Warrants:                (FUSAW)
  1997
       First Quarter                         $ 1.88         $ 1.00
       Second Quarter                        $ 1.38         $  .38
       Third Quarter                         $  .75         $  .19
       Fourth Quarter                        $  .47         $  .13

  1998
       First Quarter                         $  .19         $  .06
       Second Quarter                        $  .31         $  .09
       Third Quarter                         $  .50         $  .13
       Fourth Quarter                        $  .34         $  .16


    On March 19, 1999, there were approximately 77 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 1,286 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. Management's Discussion and Analysis or Plan of Operation

Results of Operations for Years Ended December 31, 1997 and 1998:

    The following table sets forth certain operating data (in dollars
and as a percentage of the Company's sales) for the years ended December 
31, 1997 and 1998:
                                     1997        %        1998       %
                                  -----------    ---   -----------   ---
  Sales                           $12,176,780    100   $19,147,728   100
  Cost of Sales                     8,957,533     74    11,590,631    61
  Gross Profit                      3,219,247     26     7,557,097    39
  Operating Expenses                6,068,092     50     6,448,168    34
  Operating Income (Loss)          (2,848,845)   (23)    1,108,929     6
  Interest Expense                     40,486      1        88,183     1
  Interest Income                      92,399      1        10,128     1
  Income (Loss) Before Income Tax  (2,796,932)   (23)    1,030,874     5
  Income Tax Expense                        -      -       433,000     2
  Net Income (Loss)               $(2,796,932)   (23)  $   597,874     3

Sales:

    Sales were $19,148,000 for the year ended December 31, 1998,
an increase of 57% from sales of $12,177,000 for the year ended 
December 31, 1997.  The $6,971,000 increase in sales was due primarily 
to an increase in retail sales of $6,389,000, or 81%, as compared to the 
prior year period. 
                                      13<PAGE>

    Retail sales were $14,307,000 for the year ended December 31, 1998,
an increase of 81% from retail sales of $7,917,000 for the year
ended December 31, 1997. This increase was due to several factors: 
continued expansion of sales to national mass merchants; significant 
increases in basketball-related sales, primarily from its college vulcanized 
rubber product line; increasing sales from the Company's expanding 
product lines such as the full-size NFL football, polyester filled "softee" 
products and playground balls; an increase in baseball-related sales due in 
part to the excitement surrounding the breaking of MLB's home run 
record; and a significant increase in the Company's amusement and 
entertainment business.  The Company realized sales increases of 
$2,759,000 or 156%, $1,532,000 or 211%, $1,505,000 or 34%, and 
$358,000, from its football, basketball, baseball and playground ball 
product lines, respectively.  Several factors support continued retail sales 
growth in the future, which is expected to result in retail sales accounting 
for a greater percentage of its total sales.  These factors include expanding 
penetration into national retailers.  The number of stores within each retail 
chain increased in 1998; however, it reflected a small percentage of the 
national retail chains overall store count.  The Company expects the 
number of stores it services to increase significantly in 1999, continued 
growth with its amusement and entertainment customers, continued 
growth from its vulcanized rubber "recreational" sports ball product lines, 
and the leveraging of existing licensed properties, such as Nickelodeon's 
"Rugrats" characters, and the addition of new licensed properties.

    Promotions sales in 1998 were $4,841,000, an increase of 14% 
from promotions sales of $4,260,000 for the year ended December 31, 
1997.  The increase was due to increases of $1,770,000, or 134%, and 
$804,000, or 364%,  from baseball and football-related promotions sales, 
offset by a decrease of $1,729,000 or 100%, of hockey-related promotions 
sales.  The Company's promotions business differed in 1998 as compared 
to prior years in that multi-regional corporate promotional programs 
accounted for a substantially smaller percentage of aggregate promotions 
sales.  The Company anticipates that in the future its promotions business 
will represent a smaller percentage of the Company's total sales, given the 
growth rate of the Company's retail business and the likelihood that fewer 
multimillion dollar "national" programs will occur in the future.  
However, the Company will continue to pursue its objective of expanding 
its promotions business and its contribution to operating profits through 
several strategies, including: leveraging its relationships with its licensors, 
including MLBP, NFL and colleges, to secure promotions with 
corporations who sponsor these organizations; capitalizing on the success 
of its amusement/entertainment retail business by pursuing promotional 
opportunities with these same customers; leveraging current and future 
licensing rights by using these properties and characters in value-added 
corporate promotions; and using the Company's expanded line of 
products to increase promotions with professional and college sports teams.

Gross Profit:

    Gross profit was $7,557,000 for the year ended December 31,
1998, an increase of 135% from gross profit of $3,219,000 for the year 
ended December 31, 1997, reflecting the substantially higher sales in 
1998.  Gross margins as a percentage of sales for the year ended 

                                      14<PAGE>
December 31, 1998 increased to 39% from 26% for the prior year period.
This increase was due to two factors; the 1997 gross margins reflected 
the $1,175,000 provision for discontinued and excess inventory, which if 
excluded would have resulted in gross margins of 36%.  Notwithstanding 
this provision, the increase from 36% to 39% in 1998 reflected the higher 
percentage of retail sales and the introduction in 1998 of certain very 
successful higher margin products.  The Company expects that gross 
margins in 1999 should be consistent with the margins realized in 1998.

Operating Expenses:

    The Company's operating expenses were $6,448,000 for the year
ended December 31, 1998, an increase of 6% from operating expenses of 
$6,068,000 for the year ended December 31, 1997. Operating expenses as 
a percentage of sales decreased to 34% in 1998 from 50% in 1997 due to 
the fixed component of operating expenses, which in absolute terms where 
lower than in 1997, being allocated over significantly higher sales.   
Operating expenses increased in absolute terms due to variable operating 
expenses such as a significant increase in royalties expense, reflective of 
the Company's increased retail sales contribution.

    Royalties expenses were $1,569,000 for the year ended December 
31, 1998, an increase of 99% from royalties expenses of $788,000 for the 
year ended December 31, 1997.  Royalties expenses as a percentage of 
sales increased to 8% in 1998 from 6% in 1997.  The increase in royalties 
expenses during this period both in absolute terms and as a percentage of 
sales in 1998 was due to several factors including a significant increase in 
sales of higher royalty bearing retail products, such as the NFL full-size 
football and baseballs commemorating the MLB players participating in 
1998's home run race; combined with a greater number of promotions in 
1998 as compared to 1997 which were royalty bearing. The Company 
expects that in absolute terms, royalties expenses will increase in 1999, 
reflecting the anticipated increase in retail sales and, as a percentage of 
sales, will remain consistent with 1998.  As previously noted, the 
Company is dependent upon its licensing arrangements and their 
successful renewal. Most of the Company's significant licenses expire on 
December 31, 1999 with the exception of the NFL licenses that expire on 
March 31, 2000.  Although historically the Company's licenses have been 
renewed by its licensors, and the Company does not anticipate the non-
renewal of any of its significant licenses, there can be no assurance that 
the Company will continue to be able to enter into comparable new 
licensing agreements.

    Marketing expenses were $2,260,000 for the year ended 
December 31, 1998, an increase of 5% from marketing expenses of 
$2,154,000 for the year ended December 31, 1997.  Marketing expenses 
as a percentage of sales decreased to 12% in 1998 from 18% in 1997, 
reflecting the absorption of the fixed components of marketing expenses 
over significantly higher sales volume. Marketing expenses increased by 
$106,000 due primarily to increases in variable costs such as independent 
sales commissions and performance bonuses offset by lower sales wages 
and travel costs.  The Company anticipates that marketing expenses 
should increase in absolute terms in 1999, reflecting increases in variable 
costs resulting from expected higher sales volumes.  Marketing expenses 
as a percentage of sales in 1999 are expected to be consistent with the 
percentage realized in 1998.  
                                      15<PAGE>

     General and administrative expenses were $2,301,000 for the year 
ended December 31, 1998, a decrease of 10% from general and administrative
expenses of $2,550,000 for the year ended December 31, 1997.  The $249,000
decrease between periods was due in part to significant decreases in
professional services and legal fees offset in part by higher personnel
and facility costs.  The Company incurred higher facility costs to accommodate
significantly higher inventory levels and greater packaging and shipping
facilities required by its expanding retail business.  The Company anticipates
that general and administrative expenses for the year ending December 31, 1999
should increase moderately as compared to total general and administrative
expenses incurred in 1998.

Other Income (Expense):

    Interest expense was $88,000 for the year ended December 31, 1998, an
increase of 120% from interest expense of $40,000 for the year ended
December 31, 1997.  The Company anticipates that interest expense in future
periods will continue to increase reflecting increased borrowing from the
Company's revolving line of credit and additional capital lease purchases as
more fully explained in "Liquidity and Capital Resources" below.

    Interest income was $10,000 for the year ended December 31, 
1998 as compared to $92,000 for the year ended December 31, 1997.  
This decrease is due to the Company's average cash balances available 
for investment being substantially lower during 1998 as compared to 
1997.  The Company anticipates that interest income in 1999 will 
continue to be insignificant.

Income Tax Expense:

    Income tax expense of $433,000 was recorded for the year ended
December 31, 1998.  There was no income tax expense (benefit) for the 
year ended December 31, 1997 due to the 1997 operating loss.  No benefit 
for these 1997 operating loss and deferred expenses were recognized in 
1997 or 1998 due to the uncertainty as to the future realizability of these 
deferred assets in future periods.  No other valuation allowances were 
deemed necessary as all deductible temporary differences created prior to 
1997 are expected to be utilized from the generation of future taxable 
income.  Based upon the net income realized in 1998, and the expectation 
of continuing increases in its retail business, it is probable that future 
taxable income will be sufficient to realize the $90,000 net deferred tax 
asset balance at December 31, 1998, on future tax returns.  However, 
historically the Company has experienced significant variability in its 
operating results. As a result, significant uncertainty exists as to the 
realizability of the $1,181,000 of gross deferred tax assets available as of 
December 31, 1998. Due to this uncertainty, the Company has established 
a valuation allowance to the extent of the $1,181,000 of gross deferred tax 
assets.

Liquidity and Capital Resources

    The Company's net working capital increased by $1,021,000 from
December 31, 1997 to December 31, 1998, to a net working capital 
surplus of $4,884,000 at December 31, 1998 from a net working capital 
      
                                      16<PAGE>
surplus of $3,863,000 at December 31, 1997.  Cash flow from operations decreased
by $3,067,000 from cash provided by operations of $2,128,000 for the year ended
December 31, 1997 to cash used in operations of $939,000 for the year ended 
December 31, 1998.  This decrease was primarily the result of significant 
increases in both account receivable and inventories reflecting the significant
increase in annual sales and, in particular, the 143% increase in sales during
the fourth quarter of 1998 as compared to the prior year period.  

     Cash and equivalents aggregated $8,000 at December 31, 1998, a 
decrease of $757,000 from cash and equivalents of $765,000 at December 31, 
1997.  This decrease is primarily due to the significant increase in accounts 
receivable and inventories as previously noted.   The Company's inventory 
increased by approximately $962,000 to $3,439,000.  The Company's 
expanding retail product lines, including rubber sports balls, will require
the Company, in the future, to maintain these higher inventory levels.  The 
Company also utilized cash resources for the acquisition of non-current assets, 
including property and equipment.  During 1998, the Company acquired fixed 
assets for an aggregate purchase price of approximately $244,000, including 
production machinery, office and computer equipment.  For the next twelve 
months, the Company anticipates that its capital expenditure requirements
will approximate $400,000, which will be used to purchase additional product 
molds, production machinery, and office and computer equipment.

    At December 31, 1998, the Company has commitments for minimum guaranteed
royalties under licensing agreements totaling $637,000 in the aggregate
through 2000, of which $622,000 is due at various times in 1999.  Based upon
the net income realized by the Company in 1998 and the expectation of
continuing increases in its retail business, management expects these
guaranteed royalties to be funded from operating cash flows.

    In December 1998, the Company amended and renewed a one-year credit
agreement with Scripps Bank.  This revolving line of credit facility (the
"credit line") in the amount of $3,500,000 is collateralized by the assets
of the Company and actual borrowings are limited to available
collateral, as defined in the agreement.  Borrowings under the credit line 
bear interest at the bank's prime rate plus .75%.  The credit line contains 
financial covenants requiring the Company to maintain minimum net 
worth levels, minimum working capital and debt to equity ratios.  The 
credit line expires April 15, 2000.  The availability under the credit line 
during 1997 and 1998 was $2,000,000 and $1,500,000, respectively.  In 
February 1998, Scripps Bank waived the net worth covenant at December 
31, 1997 and reduced the working capital requirements and modified the 
borrowing base formula on the new credit line.  There were no borrowings 
under the credit line at December 31, 1997.  At December 31, 1998, 
outstanding borrowings under the credit line totaled $400,000. 

    The Company has a $3,000,000 line of credit facility (the 
"facility") with Merrill Lynch International Bank Limited at an interest 
rate of 1.75% above the London Interbank Offering Rate term that the 
Company chooses to select.  Any borrowing under the line of credit, 
which is used solely to collateralize the issuance of stand-by letters of 
credit to manufacturers, are required to be secured by cash collateral 
deposited with Merrill Lynch equal to the credit outstanding.  The line of 
credit extends until December 10, 2001.  There was no borrowing under 
the line of credit as of December 31, 1998.

                                      17<PAGE>

    Management believes that the Company's existing cash position, 
credit facilities, combined with internally generated cash flows, will be 
adequate to support the Company's liquidity and capital needs at least 
through the end of 1999.

Cautionary Statement 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 
include, among others, statements concerning the Company's outlook for 
1999, overall sales, gross margin, and operating expense trends, the 
Company's expectations as to funding its capital expenditures and 
operations during 1999, 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 forward-
looking statements in this report are subject to risks and uncertainties that 
could cause actual results to differ materially from those expressed in or 
implied by the statements.

1999 Outlook  

    Looking forward to 1999, the Company expects continued improvement over
fiscal year 1998 results.  During the past several years, the Company's
retail business has consistently grown in excess of 25% per year.  In 1998,
the Company's retail sales increased by 81%, driven primarily by growth in
national account sales and entertainment/amusement-related sales.  The
Company's ability to exceed its historical retail sales growth rate of 25%
per year will be dependent upon several factors including: continued
expansion and penetration into national mass merchants; continued growth of
its rubber sports ball product line; increasing sales with its amusement park
and entertainment related customers; and the leveraging of existing licensed
properties and the addition of new licensed properties. Retail sales in 1999
are anticipated to represent a similar percentage of total sales as compared
to 1998, and should continue to contribute to reducing the variability of the 
Company's sales and earnings in future periods.  Historically, the 
Company was reliant upon its promotions business to add sufficient sales 
to generate operating profits.  The Company anticipates that by early 
1999, its retail sales should be sufficient to absorb the Company's 
operating costs.  The Company will continue to aggressively pursue the 
growth of its promotions business, focusing on leveraging its sports league 
relationships to secure promotions from their corporate sponsors.  Given 
the inherent variability of the promotions business, it is difficult to
project the extent of future promotions.  However, based on the Company's 
current discussions and prospects to date, the Company expects moderate 
growth in its promotions business in 1999.

    The Company was successful in 1998 in reducing its operating 
costs and improving efficiencies.  The Company expects only moderate 
increases in its fixed costs and expects higher variable costs such as 
royalties expense, commissions and other direct selling expenses to 
increase in absolute terms as a result of higher sales.  The Company 
anticipates, however, that net margins, as a percentage of sales, will 
improve in 1999 as compared to 1998.

                                      18<PAGE>

    The ability of the Company to continue to realize increased sales 
and earnings in 1999 and future periods is dependent upon in large 
measure its ability to realize continued growth in its retail businesses, 
continue to expand its promotions business through customer and product 
diversification, maintain or increase its gross margins, and control its 
overall cost structure.  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:

    * the ability of the Company to maintain the growth momentum of its
      retail division by continuing to expand its national mass merchant
      relationships, maintain the appeal and desirability of its existing
      product lines and continue to develop new product offerings

    * increasing competition from other sports product licensed companies,
      including companies that have or may receive the same or similar
      licensing rights as the Company's and may have substantially greater
      financial resources than the Company

    * the ability to maintain and renew its significant licensing arrangements

    * the effectiveness of the independent sales representative organizations
      to expand the breadth of the Company's customer base and significantly
      increase sales

    * the ability of the Company to effectively compete in highly
      competitive industries such as recreational sports balls and
      polyester filled "softee" or plush products

    * the ability to increase its overall gross margins, or its inability
      to maintain the higher level of gross margins realized from its
      sports related products

    * the ability to expand its customer base, particularly in its
      promotions business, and decrease its concentration of sales
      among a few significant customers

    * the employment and retention of high producing sales staff

    * the ability to source products from China at competitive prices
      without delays, increased tariffs, other restrictions or
      unanticipated costs

    * continued rapid growth in the popularity of licensed sports products

    * potential 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

    * the ability to effectively meet customer demands regarding timely
      delivery and order fulfillment

    * the popularity of current or future licensing properties and the
      ability of the Company to leverage these properties to produce
      sales and earnings.
                                      19<PAGE>

     These and other risks and uncertainties affecting the Company are
discussed in greater detail in this report and in other filings by the 
Company with the Securities and Exchange Commission.

Item 7. Financial Statements

    Reference is made to the Financial Statements referred to in the
accompanying index setting forth the financial statements of Fotoball 
USA, Inc., together with the report, dated February 5, 1999, of Hollander, 
Lumer & Co. LLP, the Company's independent auditors.

Item 8.	Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

    None.

                                   Part III

Item 9.	Directors and Executive Officers of the Registrant

    The following table sets forth certain information as of March 15, 1999
concerning the executive officers and directors of the Company:

NAME                          AGE            POSITION
----                          ---            --------
Salvatore T. DiMascio 1,2      59      Director 
Michael Favish                 50      President, Chief Executive Officer and
                                        Director
Nicholas A. Giordano 2         56      Director
Joel K. Rubenstein 1           62      Director
David G. Forster               39      Executive Vice President, Finance,
                                        Treasurer and Chief Financial Officer
Carl E. Francis                40      Senior Vice President, Sales and
                                        Marketing
Karen M. Betro                 48      Vice President, Operations
Jon D. Schneider               31      Vice President, Marketing, Team Business
Steve B. Katzke                32      Vice President, Specialty Sales and
                                        Marketing
---------  
1.  Member of compensation committee
2.  Member of audit committee

    Salvatore T. DiMascio has served as a director of the Company 
since August 1997.  Since 1986, Mr. DiMascio has been President of 
DiMascio Venture Management, Inc., a management and investment firm. 
 Additionally, from 1994 to 1997, Mr. DiMascio was Executive Vice 
President of Anchor Gaming, Inc., a public gaming company.  From 1978 
to 1986, Mr. DiMascio was Senior Vice President and Chief Financial 
Officer of Conair Corporation, a public manufacturer of health and 
beauty products.  Mr. DiMascio's previous business experience includes 
Audit Manager with Arthur Young & Co., a national CPA firm, and as 
Controller of Revlon Inc.  Mr. DiMascio is currently serving on the Board 
of Directors of U.S. Communications Inc., H.E.R.C. Products Inc., and 
Colorado Casino Resort Inc., all of which are publicly-held corporations.

                                      20<PAGE>

    Michael Favish has served as President and a director of the 
Company since his founding of the Company in December 1988 and as 
President, Chief Executive Officer and a director of the Company since 
March 1994.  Mr. Favish has over 26 years of product design, 
manufacturing and sourcing experience and has established 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.  From late 1997 
through 1998, Mr. Giordano was a consultant for financial service 
organizations.  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).

    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 1993 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.

    David G. Forster has served as Executive Vice President, 
Finance since January 1998, as Treasurer and Chief Financial Officer of 
the Company since March 1994 and as Vice President, Finance of the 
Company from December 1993.  From November 1989 through 
November 1993, Mr. Forster was employed as the Controller of Diamond 
Designs, Inc., a retail jewelry chain. From 1986 to 1989 he was 
associated with the certified public accounting firms of Touche Ross and 
Steres, Alpert & Carne. Mr. Forster is a certified public accountant.

    Carl E. Francis has served as Senior Vice President, Sales and 
Marketing since January 1998, as Vice President, Retail Development of 
the Company from January 1996 through December 1997 and has served 
as Director of Retail Development from November 1994 through 
December 1995. Prior to such time, he was a Customer Service Analyst 
for Prudential Mutual Funds Services, a mutual funds service company, 
and Charmont, a Japanese eyewear company. From June 1987 through 
December 1990, Mr. Francis was employed as Retail Sales Manager for 
Major League Baseball Properties in New York City. Prior to this, from 
January 1981 through May 1987, Mr. Francis was a retail buyer for J.C. 
Penney Company (1982-1987) and Abraham & Straus (1981-1982), both 
of which are retail department store chains.

                                      21<PAGE>

     Karen M. Betro has served as Vice President, Operations of the 
Company since January 1996 and has served as Controller of the 
Company since 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.

    Jon D. Schneider has served as Vice President, Marketing, Team 
Business since January 1998, as Managing Director of Project 
Development since October 1994, and as Director of Special Projects 
since April 1993.  From 1990 to 1993, Mr. Schneider was employed in 
various positions in the sports industry, including Assistant General 
Manager of the Newport Beach Dukes and positions with the Oakland 
Athletics and Sun City Rays.

    Steve B. Katzke has served as Vice President, Specialty Sales and 
Marketing since January 1998, 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.

Item 10. Executive Compensation

    The information required by Item 10 is incorporated herein by
reference to the section labeled "Executive Compensation" in the 
Company's definitive Proxy Statement in connection with the Company's 
1999 Annual Meeting of Stockholders.

Item 11. Security Ownership of Certain Beneficial Owners and Management

    The information required by Item 11 is incorporated herein by 
reference to the section labeled "Security Ownership of Certain Beneficial 
Owners and Management" in the Company's definitive Proxy Statement 
in connection with the Company's 1999 Annual Meeting of Stockholders.

Item 12. Certain Relationships and Related Transactions

    The information required by Item 12 is incorporated herein by
reference to the section labeled "Election of Directors" and "Executive 
Compensation" in the Company's definitive Proxy Statement in 
connection with the Company's 1999 Annual Meeting of Stockholders.

Item 13. Exhibits and Reports on Form 8-K

    (A). Exhibits
    EXHIBIT
    NUMBER                               DESCRIPTION
    ------                               -----------
    1.1(P)          Form of Underwriting Agreement (incorporated by reference
                    to Exhibit 1.1 of the Registration Statement on Form SB-2
                    (File No. 33-80508) (the "Form SB-2")).

    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).

                                      22<PAGE>

    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).

    4.1(P)          Form of Representative's Unit Purchase Option
                    (incorporated herein by reference to Exhibit 4.1 of
                    the Form SB-2).

    4.2(P)          Form of Warrant Agreement (incorporated herein by
                    reference to Exhibit 4.2 of the Form SB-2).

    4.3(P)          Specimen Warrant Certificate (incorporated herein by
                    reference to Exhibit 4.3 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 (File No. 0-21239) (the "Form 8-A").

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

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

    10.1(1)         License Agreement with Major League Baseball
                    Properties, Inc., dated May 14, 1997. (incorporated 
                    herein by reference to Exhibit 10.1(1) of the 
                    Company's Annual Report on Form 10-KSB for 
                    the fiscal year ended December 31, 1997 (the 
                    "1997 Form 10-KSB")).

    10.1(2)         Amended License Agreement with Major League
                    Baseball Properties, Inc., dated December 11, 1998.

    10.1(3)         License Agreement with Major League Baseball Players 
                    Association dated March 29, 1997. (incorporated 
                    herein by reference to Exhibit 10.1(3) of the 1997 
                    Form 10-KSB).

    10.1(4)         License Agreement with National Football League
                    Properties, Inc., dated April 14, 1998.

    10.3(5)*        Stock Option Agreement dated January 30, 1998 with
                    Salvatore T. DiMascio (incorporated herein by 
                    reference to Exhibit 10.3(5) of the 1997 Form 10-KSB).

                                      23<PAGE>


    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).

    10.4(1)*(P)     Form of Employment Agreement with Michael
                    Favish (incorporated herein by reference to Exhibit 
                    10.4(1) of the Form SB-2).

    10.4(3)*        Settlement Agreement and Mutual General Release
                    dated October 1, 1997 with Fred S. Ostern 
                    (incorporated herein by reference to Exhibit 10.4(3) 
                    of the 1997 Form 10-KSB).

    10.4(9)         Consulting Agreement with ADR Management Group
                    Ltd. dated August 11, 1997 (incorporated herein by 
                    reference to Exhibit 10.4(9) of the 1997 Form 10-KSB).

    10.4(10)        Stock Option Agreement dated August 11, 1997 with 
                    ADR Management Group Ltd. (incorporated herein 
                    by reference to Exhibit 10.4(10) of the 1997 Form 10-KSB).

    10.5(P)         Lease, dated February 4, 1994, by and between the 
                    Company and George and Marcel Jach, with 
                    respect to 3738 Ruffin Road, San Diego, 
                    California (incorporated herein by reference to 
                    Exhibit 10.5 of the Form SB-2).

    10.5(1)         Sublease, dated June 19, 1997 by and between the
                    Company and General Textiles, with respect to 
                    4000 Ruffin Road, San Diego, California 
                    (incorporated herein by reference to Exhibit 10.5(1) 
                    of the 1997 Form 10-KSB).

    10.5(2)         Second and Third Amendment dated June 1, 1998, and
                    September 29, 1998, respectively, to sublease 
                    between the Company and General Textiles, with 
                    respect to 4000 Ruffin Road, San Diego, California.

    10.9(2)         Merrill Lynch International Bank Limited irrevocable 
                    stand-by letter of credit dated December 1, 1995 
                    (incorporated herein by reference to Exhibit 10.9(2) 
                    of the Form SB-2).

    10.10           Revolving Credit Agreement dated November 13, 1996
                    between Fotoball USA, Inc., and Scripps Bank 
                    (incorporated herein by reference to Exhibit 
                    10.10(1) of the Form SB-2).



                                      24<PAGE>
             

    10.10(1)        Amended Revolving Credit Agreement dated February
                    19, 1998 between Fotoball USA, Inc., and Scripps 
                    Bank (incorporated herein by reference to Exhibit 
                    10.10(1) of the 1997 Form 10-KSB).

    10.10(2)        Amended Revolving Credit Agreement dated December
                    28, 1998 between Fotoball USA, Inc., and Scripps Bank.

    11              Statement re: computation of per share earnings.

    21              Subsidiaries of the Company.

    27              Financial data schedule.

    *    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-KSB.

    (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, 1998.




























                                      25<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 30, 1999              By:  /s/ Michael Favish
                                        --------------------------------
                                        Michael Favish
                                        President 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 30, 1999              By:  /s/ Michael Favish
                                        --------------------------------
                                        Michael Favish
                                        President and Chief Executive Officer

Dated: March 30, 1999              By:  /s/ David G. Forster
                                        --------------------------------
                                        David G. Forster
                                        Executive Vice President - Finance and
                                        Chief Financial Officer (Principal
                                        Financial and Accounting Officer)

Dated: March 30, 1999              By:  /s/ Salvatore T. DiMascio
                                        --------------------------------
                                        Salvatore T. DiMascio
                                        Director

Dated: March 30, 1999              By:  /s/ Nicholas A. Giordano
                                        --------------------------------
                                        Nicholas A. Giordano
                                        Director

Dated: March 30, 1999              By:  /s/ Joel K. Rubenstein
                                        --------------------------------
                                        Joel K. Rubenstein
                                        Director









                                      26<PAGE>

    EXHIBIT
    NUMBER                         DESCRIPTION                             
    -------                        -----------                             
    10.1(2)         Amended License Agreement with Major League Baseball
                    Properties, Inc. dated December 11, 1998.

    10.1(4)         License Agreement with National Football League
                    Properties, Inc., dated April 14, 1998.

    10.5(2)         Second and Third Amendment dated June 1, 1998 and
                    September 29, 1998, respectively to sublease between
                    the Company and General Textiles, with respect to
                    4000 Ruffin Road, San Diego, California.

    10.10(2)        Amended Revolving Credit Agreement dated December 28,
                    1998 between Fotoball USA, Inc., and Scripps Bank.

    11              Statement re: computation of per share earnings.

    21              Subsidiaries of the Company.

    27              Financial data schedule.
































                                      27<PAGE>

                                FOTOBALL USA, INC.
                          INDEX TO FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1998


    Report of Independent Auditors                          F-1

    Balance Sheets at December 31, 1997 and 1998            F-2

    Statements of Operations for the years ended
     December 31, 1997 and 1998                             F-3

    Statement of Stockholders' Equity for the
     years ended December 31, 1997 and 1998                 F-4

    Statements of Cash Flows for the years
     ended December 31, 1997 and 1998                       F-5

    Notes to Financial Statements                           F-6



































                                      28<PAGE>


                        REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and Stockholders
FOTOBALL USA, INC.

We have audited the accompanying balance sheets of FOTOBALL USA, INC. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with generally accepted 
auditing standards.  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 statement presentation.  We believe that our 
audits provide 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, 1997 and 1998, and 
the results of its operations, and its cash flows for the years then 
ended in conformity with generally accepted accounting 
principles.


                                       HOLLANDER, LUMER & CO. LLP

Los Angeles, California
February 5, 1999
















                                      F-1<PAGE>
                               FOTOBALL USA, INC.
                                 BALANCE SHEETS
                          DECEMBER 31, 1997 AND 1998

                                                   1997            1998
                                    ASSETS     -----------     -----------
CURRENT ASSETS
  Cash and equivalents                         $   764,855     $     8,498
  Accounts receivable less allowances of
   $147,000 in 1998 and $151,000 in 1997         1,402,607       3,041,633
  Inventories                                    2,476,815       3,438,552
  Prepaid expenses and other                       148,855         157,608
  Deferred income taxes                            150,000          90,000
                                               -----------     -----------
    TOTAL CURRENT ASSETS                         4,943,132       6,736,291
                                               -----------     -----------
PROPERTY AND EQUIPMENT, net                      1,217,892       1,126,551
                                               -----------     -----------
OTHER ASSETS
  Deferred income taxes                            301,000              --
  Deposits and other                               115,382          31,767
                                               -----------     -----------
    TOTAL OTHER ASSETS                             416,382          31,767
                                               -----------     -----------
                                               $ 6,577,406     $ 7,894,609
                                               ===========     ===========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Note payable to bank                         $        --     $   400,000
  Current portion of capital leases                 90,182          95,970
  Accounts payable and accrued expenses            789,388       1,315,831
  Settlement liability                             200,000              --
  Income taxes payable                                  --          39,800
                                               -----------     -----------
    TOTAL CURRENT LIABILITIES                    1,079,570       1,851,601
CAPITAL LEASES, net of current portion             229,930         154,503
                                               -----------     -----------
    TOTAL LIABILITIES                            1,309,500       2,006,104
                                               -----------     -----------
COMMITMENTS AND CONTINGENCIES 
STOCKHOLDERS' EQUITY 
  Preferred stock, $.01 par value;
    authorized-1,000,000 shares; issued and
    outstanding-none
  Common stock, $.01 par value;
    authorized - 15,000,000 shares;
    issued and outstanding - 2,699,242
    shares in 1998 and 2,676,742 shares
    in 1997                                         26,767          26,992
  Additional paid-in capital                     8,568,494       8,590,994
  Accumulated deficit                           (3,327,355)     (2,729,481)
                                               -----------     -----------
    TOTAL STOCKHOLDERS' EQUITY                   5,267,906       5,888,505
                                               -----------     -----------
                                               $ 6,577,406     $ 7,894,609
                                               ===========     ===========
       The accompanying notes are an integral part of these statements.
                                      F-2<PAGE>

                               FOTOBALL USA, INC.
                            STATEMENTS OF OPERATIONS
                    YEARS ENDED DECEMBER 31, 1997 AND 1998


                                                   1997            1998
                                               -----------     -----------
SALES                                          $12,176,780     $19,147,728
COST OF SALES                                    8,957,533      11,590,631
                                               -----------     -----------
    GROSS PROFIT                                 3,219,247       7,557,097
                                               -----------     -----------
OPERATING EXPENSES
  Royalties                                        787,634       1,568,909
  Marketing                                      2,154,023       2,259,680
  General and administrative                     2,550,040       2,300,536
  Depreciation and amortization                    366,395         319,043
  Settlement cost                                  210,000              --
                                               -----------     -----------
    TOTAL OPERATING EXPENSES                     6,068,092       6,448,168
                                               -----------     -----------
    INCOME (LOSS) BEFORE
     OTHER INCOME (EXPENSE)                     (2,848,845)      1,108,929
                                               -----------     -----------
OTHER INCOME (EXPENSE)
  Interest expense                                 (40,486)        (88,183)
  Interest income                                   92,399          10,128
                                               -----------     -----------
    TOTAL OTHER INCOME (EXPENSE)                    51,913         (78,055)
                                               -----------     -----------
    INCOME (LOSS) BEFORE INCOME TAX             (2,796,932)      1,030,874

    INCOME TAX EXPENSE                                  --         433,000
                                               -----------     -----------
NET INCOME (LOSS)                              $(2,796,932)    $   597,874
                                               ===========     ===========
WEIGHTED AVERAGE NUMBER OF
 COMMON SHARES OUTSTANDING:
    BASIC                                        2,676,742       2,694,242
                                               ===========     ===========
    DILUTED                                      2,676,742       2,774,170
                                               ===========     ===========
NET INCOME (LOSS) PER COMMON SHARE:
    BASIC                                      $     (1.04)    $       .22
                                               ===========     ===========
    DILUTED                                    $     (1.04)    $       .22
                                               ===========     ===========





                                         
       The accompanying notes are an integral part of these statements.
                                      F-3<PAGE>

                               FOTOBALL USA, INC.
                        STATEMENT OF STOCKHOLDERS' EQUITY  
                    YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
                                Common Stock         Additional
                            ---------------------      Paid-in      Accumulated
                              Shares      Amount       Capital        Deficit   
    Total
                            ----------   ---------   -----------   ------------
------------
<S>                         <C>          <C>         <C>           <C>          
<C> 
BALANCE, December 31, 1996   2,676,742   $  26,767   $ 8,562,194   $   (530,423)
 $  8,058,538

Stock-based compensation
 expense                                                   6,300                
        6,300

Net loss                                                             (2,796,932)
   (2,796,932)
                            ----------   ---------   -----------   ------------ 
  ------------
BALANCE, December 31, 1997   2,676,742      26,767     8,568,494     (3,327,355)
    5,267,906

Stock-based compensation   
 expense                                                   9,900                
        9,900

Exercise of stock options       22,500         225        12,600                
       12,825

Net income                                                              597,874
      597,874
                            ----------   ---------    -----------   ----------- 
  -----------
BALANCE, December 31, 1998   2,699,242   $  26,992    $ 8,590,994   $(2,729,481)
  $ 5,888,505
                            ==========   =========    ===========   ===========
  ===========

       The accompanying notes are an integral part of these statements.
                                      F-4<PAGE>
                               FOTOBALL USA, INC.
                           STATEMENTS OF CASH FLOWS  
                    YEARS ENDED DECEMBER 31, 1997 AND 1998

                                                      1997            1998
                                                  ------------     -----------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                               $ (2,796,932)   $    597,874
  Adjustments to reconcile net income
   (loss) to net cash provided by (used in)
   operating activities:
    Provision for discontinued and
     excess inventory                                1,145,720              --
    Depreciation and amortization of
     property and equipment                            403,977         335,381
    Amortization of stock compensation expense           6,300           9,900
  Changes in operating assets and liabilities:
    Accounts receivable                              5,967,010      (1,639,026)
    Inventories                                     (1,541,329)       (961,737)
    Prepaid expenses and other                          27,431          (8,753)
    Deferred income taxes                                   --         361,000
    Accounts payable and accrued expenses           (1,164,718)        526,443
    Income taxes payable                              (119,200)         39,800
    Settlement liability                               200,000        (200,000)
                                                  ------------     -----------
        NET CASH PROVIDED BY (USED IN)
         OPERATING ACTIVITIES                        2,128,259        (939,118)
                                                  ------------     -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                  (383,717)       (215,888)
  (Increase) decrease in long-term deposits            (59,933)         83,615
                                                  ------------     -----------
        NET CASH USED IN INVESTING ACTIVITIES         (443,650)       (132,273)
                                                  ------------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Repayment of capital lease obligations               (76,308)        (97,791)
  Borrowings (repayments) under revolving
   line of credit                                   (1,825,000)        400,000
  Proceeds from exercise of stock options                   --          12,825
                                                  ------------     -----------
        NET CASH PROVIDED BY (USED IN)
         FINANCING ACTIVITIES                       (1,901,308)        315,034
                                                  ------------     ----------- 
NET DECREASE IN CASH AND EQUIVALENTS                  (216,699)       (756,357)
CASH AND EQUIVALENTS, Beginning of period              981,554         764,855
                                                  ------------     -----------
CASH AND EQUIVALENTS, End of period               $    764,855     $     8,498
                                                  ============     ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
  Interest paid                                   $     40,486     $    83,149
  Income taxes paid                               $    121,516     $        --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
 AND FINANCING ACTIVITIES:
  Equipment acquired under capital leases         $    198,930     $    28,152

       The accompanying notes are an integral part of these statements.
                                      F-5<PAGE>

                               FOTOBALL USA, INC.
                         NOTES TO FINANCIAL STATEMENTS  
                           DECEMBER 31, 1997 AND 1998

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business and Nature of Operations - The Company designs, 
develops, manufactures and markets high quality custom sports products 
which are sold in the licensed product retail market through independent 
manufacturers' representatives and directly to a nationwide network of over 
2,000 retailers including Walmart, Footlocker, J.C. Penney, Kmart, Target, 
Toys R Us, Modell's, Sears and The Sports Authority. Additionally, the 
Company designs, develops and manufactures high quality custom sports 
and non-sports related products for promotional programs.  The Company 
also provides non-licensed specialty sports products to corporations for 
resale or promotional use, including sales to amusement park and 
entertainment related companies.  The Company currently holds licenses 
with Major League Baseball Properties ("MLBP"); the Major League 
Baseball Players Association ("MLBPA"); the National Association of 
Professional Baseball Leagues, Inc. (representing professional minor league 
baseball; collectively, "Professional Baseball"); the National Football 
League Properties, Inc. and NFL Players Inc. (collectively "NFL"); National 
Hockey League Enterprises and NHL Players' Association (collectively 
"NHL"); Major League Soccer ("MLS"); over 300 colleges and universities 
("Colleges") and certain entertainment-related licenses including 
Nickelodeon's "Rugrats" characters.

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. Such cash equivalents are 
carried at cost, which approximates fair value.  

Concentration of Credit Risk - The Company invests its excess cash in 
various investment grade instruments such as treasury bills, certificates of 
deposit, commercial paper, 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 trends and interest 
rates. The Company has not experienced any losses on its cash equivalents 
or short-term investments.

Concentrations of credit risk with respect to accounts receivable are 
mitigated in part due to the large number of customers to which the 
Company's retail products are sold, as well as their dispersion across 
geographic areas. Additionally, a significant percentage of the Company's 
retail and promotions sales are sold to Fortune 500 companies.  At 
December 31, 1997 and 1998, two separate Fortune 500 companies 
accounted for 22% and 10% of total accounts receivable, respectively, 
which were collected in subsequent periods.

Inventories - Inventories have been valued at the lower of cost (first-in, 
first-out)or market.

                                      F-6<PAGE>

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

Property and Equipment - Property and equipment is stated at cost, and is
depreciated on the straight-line method over their estimated useful lives as 
follows:

    Office equipment and furniture           5 to 7 years
    Show exhibit                             7 Years
    Machinery and equipment                  7 years
    Molds                                    5 years
    Leasehold improvements                   7 years

The Company reviews for impairment of long-lived assets, certain 
identifiable intangibles, and goodwill related to those assets whenever 
events or changes in circumstances indicate that the carrying amount of an 
asset may not be recoverable. 

Stock-Based Compensation - The Company adopted only the disclosure 
requirements of SFAS No. 123 and continues to recognize the intrinsic 
value-based method, providing pro forma footnote disclosures of net income 
and earnings per share as if the fair value accounting provisions of this 
statement had been adopted.

Royalties and Licensing Arrangements - Royalties due licensors are 
generally provided for based upon a negotiated percentage of related net 
sales, frequently subject to a minimum guaranteed royalty. Prepaid license 
costs are charged to operations over the term of the contractual agreement, 
also based upon a percentage of related net sales.

Revenue Recognition - Sales of goods manufactured domestically are 
recognized when such goods are shipped from the Company's 
manufacturing facility. Sales of imported goods which are drop shipped 
directly to the customer are recognized at the time shipments are received at 
the customer's designated location. Consignment sales, which are generally 
not significant, are recorded net of an estimated allowance for returns, which 
are periodically reviewed and adjusted as necessary.

Net Income (Loss) per Common Share - The FASB issued statement No. 
128, "Earnings per Share", requiring its adoption effective for the 
Company's fiscal year ended December 31, 1997. FAS No. 128 simplifies 
the computation of EPS by requiring companies with complex capital 
structures to report basic EPS instead of primary EPS, and replaces fully 
diluted EPS with diluted EPS.  Basic EPS is calculated by dividing net 
income (loss) by the weighted average number of common shares 
outstanding during the period.  Diluted EPS is calculated by dividing net 
income by the number of common shares outstanding increased by 
exercisable or convertible securities. Diluted EPS was the same as basic 
EPS in 1997 as a result of the loss from continuing operations. The dilutive 
effect of rights to purchase preferred or common shares under the 
Company's Stockholder Rights Plan (Note 8) and from the Company's 
redeemable common stock purchase warrants have not been included in 
weighted average share amounts as the conditions necessary to cause these 
rights and warrants to be exercised were not met.

                                      F-7<PAGE>

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

Reclassifications - Certain 1997 balances have been reclassified to conform 
with the current year's presentation.

Segment Information - As of January 1, 1998, the Company adopted 
Statement of Financial Accounting Standards No. 131, "Disclosures about 
Segments of an Enterprise and Related Information", (SFAS No. 131) 
issued by the FASB. SFAS No. 131 requires that public companies report 
certain information about operating segments, products, services and 
geographical areas in which they operate and their major customers. The 
Company has one operating segment, the sale of custom sports products to 
two economically similar customer bases - retail and promotions customers. 
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 operating segment and no additional 
segment information has been provided.

2.	DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES

Significant Estimates - The preparation of financial statements in conformity 
with generally accepted accounting principles requires management to make 
estimates and assumptions that affect the reported amounts of assets and 
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenue and expenses 
during the period.  Significant estimates have been made by management 
with respect to the realizability of the Company's deferred tax assets, the 
possible outcome of threatened litigation, and the provision for discontinued 
and excess inventories.  See Footnotes 2, "Variability of Gross Margins", 3, 
7, and 11.  Actual results could differ from these estimates making it 
reasonably possible that a change in these estimates could occur in the near 
term. 

Dependence Upon Licensing Arrangements - The Company's business is 
based primarily upon its use of the insignia, logos, names, colors, likenesses 
and other identifying marks and images borne by many of its products 
pursuant to license arrangements with the NFL, Professional Baseball, and, 
to a lesser extent, Colleges. The Company's licensing arrangements expire at 
various times through March 31, 2000. The following table summarizes, in 
descending order of 1998 revenue contribution, the Company's significant 
license agreements and their terms:

    Licensor          Product           Term                Expiration Date
    --------          --------    --------------------      -----------------
    NFL Team Logo     Football    2 years                   March 31, 2000
    MLBPA             Baseball    1 year (2 year option)    December 31, 1999
    MLBP              Baseball    3 years                   December 31, 1999

The Company believes that its relationships with these licensors are 
satisfactory and anticipates that each of the license agreements will be 
renewed on acceptable terms and conditions.  The non-renewal or 
termination of one or more of the Company's licenses, particularly with the 
NFL or Professional Baseball could have a material adverse effect on the 
Company's business.

                                      F-8<PAGE>

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

Dependence on Promotions Business - The Company's promotions business 
depends primarily upon a series of one-time projects with its customers. In 
prior years, the Company's promotions business contributed the largest 
percentage of the Company's total sales and earnings and as such resulted in 
significant reliance upon generating promotion sales sufficient to operate 
profitably. The large increase in the Company's retail business in 1998 
reduced the importance of the promotions business in determining the 
Company's profitability. During the year ended December 31, 1998, 25% of 
the Company's sales was derived from promotions, of which one customer 
accounted for aggregate sales of $1,383,000 or 7% of total sales.  During the 
year ended December 31, 1997, 33% of  the Company's sales was derived 
from  promotions of which one customer accounted for aggregate sales of 
approximately $2,438,000 or 20% of total sales.

Variability of Gross Margins - Historically, the Company has realized 
higher gross margins on its retail sales as compared to promotional sales. In 
1997, the Company realized gross margins of 36%, excluding a $1,175,000 
provision for discontinued and excess inventory.  In 1998, the Company 
realized gross margins of 39%.  The increase was primarily due to the 
greater concentration of higher margin retail sales in 1998 as compared to 
1997.  The Company's gross margins fluctuate, particularly between 
quarters, based in part on the concentration of promotions and retail sales 
during the reporting period.  The type of product sold, the size of the 
promotion and extent of competition also create variability in realized gross 
margins.

Variability of Operating Results; Seasonality; Dependence Upon Baseball 
Related Sales - The Company has historically experienced significant 
quarter-to-quarter variability in its sales and net income.  This was due in 
part to the seasonality of its licensed sports product business combined with 
a significant concentration of its business from baseball. The second factor 
which in prior years significantly contributed to the variability of the 
Company's operations was its dependence on promotions business as more 
fully explained above.   The Company realized increasing sales and 
profitability in each quarter of 1998 primarily due to significant increases
in its retail businesses. 

Dependence Upon Key Personnel - The success of the Company is largely 
dependent on the personal efforts of Michael Favish, its President and Chief 
Executive Officer.  Mr. Favish has entered into a five-year employment 
agreement with the Company, commencing on August 11, 1994, which, 
among other things, precludes Mr. Favish from competing with the 
Company for a period of two years following termination of his employment
with the Company.  The loss of the services of Mr. Favish would have a
material adverse effect on the Company's business and prospects. The Company
and Mr. Favish are discussing an extension of Mr. Favish's employment
agreement.  The Company maintains "key man" life insurance on the life of
Michael Favish in the amount of $1,000,000.  

Dependence on Suppliers - In 1998, the Company purchased approximately 
87% of its raw materials and finished retail and promotions goods, 

                                      F-9<PAGE>

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

consisting primarily of synthetic baseballs, footballs, basketballs, hockey
pucks and playground balls, from six companies located in China, with two 
manufacturers accounting for 77% of total raw materials and finished goods 
purchased.  China currently holds most favored nation ("MFN") trading 
status with the United States. Any conditions imposed by the President of 
the United States and any legislation in the United States revoking or 
placing further conditions on China's MFN trading status could have a 
material adverse effect on the cost of all of the Company's products because 
products originating from China could be subjected to substantially higher 
rates of duty.

3.	INVENTORIES

Inventories consisted of the following at December 31, 1997 and 1998:

                                                    1997            1998
                                                ------------     -----------
            Finished goods                      $    808,407     $ 1,700,148
            Raw material                           1,668,408       1,738,404
                                                ------------     -----------
                                                $  2,476,815     $ 3,438,552
                                                ============     ===========

The Company recognized an allowance for discontinued and excess
inventory of $1,145,720 in 1997 resulting from the write off of the 
Company's Fototire product.  This adjustment was charged to cost of sales 
for the year ended December 31, 1997.

4.	PROPERTY AND EQUIPMENT

Property and equipment, inclusive of machinery and equipment under 
capital leases (see Note 7), consisted of the following at December 31, 1997 
and 1998:

                                                    1997            1998
                                                ------------     -----------
            Office equipment                    $    771,301     $   947,239
            Show exhibits                            182,953         195,543
            Molds                                    214,185         214,185
            Machinery and equipment                  741,803         797,315
            Leasehold improvements                   379,154         379,154
                                                ------------     -----------
                                                   2,289,396       2,533,436
                Less: accumulated depreciation
                 and amortization                 (1,071,504)     (1,406,885)
                                                ------------     -----------
                                                $  1,217,892     $ 1,126,551
                                                ============     ===========


                                     F-10<PAGE>

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

The Company recognized an impairment loss of $110,000 resulting from the 
impairment of the tire molds related to its Fototire product which was 
charged to depreciation and amortization expense for the year ended 
December 31, 1997.

5.  LINES OF CREDIT

In December 1998, the Company amended and renewed a one year credit 
agreement with Scripps Bank. This revolving line of credit facility (the 
"credit line") in the amount of $3,500,000 is collateralized by the assets
of the Company and actual borrowings are limited to available collateral,
as defined in the agreement. Borrowings under the credit line bear interest
at the bank's prime rate plus 8.75% at December 31, 1998. The credit line
contains financial covenants requiring the Company to maintain minimum
net worth levels, minimum working capital and debt to equity ratios. The
credit line expires April 15, 2000.  The availability under the credit line
during 1997 and 1998 was $2,000,000 and $1,500,000, respectively.  In
February 1998, Scripps Bank waived the net worth covenant at December 31,
1997 and reduced the working capital requirements and modified the borrowing
base formula on the new credit line.  There were no borrowings under the
credit line at December 31, 1997.  At December 31, 1998, outstanding
borrowings under the credit line totaled $400,000.

The Company has a $3,000,000 line of credit facility (the "facility") with 
Merrill Lynch International Bank Limited at an interest rate of 1.75% above 
the London Interbank Offering Rate term that the Company chooses to select.  
Any borrowing under the line of credit, which is used solely to collateralize 
the issuance of stand-by letters of credit to manufacturers, are required to
be secured by cash collateral deposited with Merrill Lynch equal to the credit 
outstanding.  The line of credit extends until December 10, 2001.  There was 
no borrowing under the line of credit as of December 31, 1998.

6.	ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at 
December 31, 1997 and 1998:

                                                    1997            1998
                                                ------------     -----------
            Accounts payable                    $    527,093     $   859,895
            Accrued payroll and related               67,355          93,750
            Accrued commissions and bonuses           15,000         124,700
            Royalties payable                         69,901          35,795
            Customer deposits                         17,176          72,972
            Other                                     92,863         128,719
                                                ------------     -----------
                                                $    789,388     $ 1,315,831
                                                ============     ===========



                                     F-11<PAGE>

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

7.	COMMITMENTS AND CONTINGENCIES

Royalties - At December 31, 1998, the Company has commitments for 
minimum guaranteed royalties under licensing agreements totaling $637,275 
through 2000 as follows:

            YEARS ENDING DECEMBER 31,
            -------------------------
                     1999                      $   621,775
                     2000                           15,500
                                               -----------
                                               $   637,275
                                               ===========

Capital Leases - The Company is obligated under various capital leases that 
expire at various dates through September 2002. Minimum annual payments 
including imputed interest under capital lease agreements are as follows at 
December 31, 1998:


            YEARS ENDING DECEMBER 31,
            -------------------------
                     1999                                        $ 119,012
                     2000                                           95,252
                     2001                                           59,739
                     2002                                           17,422
                                                                 ---------
             Total minimum lease payments                          291,425
                Less interest component                            (40,952)
                                                                 ---------
             Present value of net minimum lease payments           250,473
                Less current portion of capital leases             (95,970)
                                                                 ---------
             Capital leases, net of current portion              $ 154,503
                                                                 =========

Included in property and equipment above at December 31, 1997 and 1998
(see Note 4) is the following property and equipment acquired under capital 
leases: 

                                                    1997            1998
                                                ------------     -----------
            Machinery and equipment             $    332,252     $   360,402
            Office equipment                         145,011          84,801
            Less accumulated amortization           (122,487)       (159,891)
                                                ------------     -----------
                                                $    354,776     $   285,312
                                                ============     ===========

Amortization of capitalized leases is included in depreciation and 
amortization expense.

                                     F-12<PAGE>

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

The Company leases certain machinery, equipment and office and warehouse 
facilities under operating leases, of which one of the facilities leases'
includes a cost escalation clause, and all expire on various dates through
2001.  Total rental expense charged to operations was $386,000 in 1997 and
$480,000 in 1998.  At December 31, 1998, the minimum future rental commitments
undernoncancellable leases payable over the remaining lives of the leases are:

                                                          MINIMUM FUTURE
            YEARS ENDING DECEMBER 31,                   RENTAL COMMITMENTS
            -------------------------                   -------------------
                     1999                                   $  518,155
                     2000                                      394,503
                     2001                                       74,840
                                                            ----------
                                                            $  987,498
                                                            ==========

Settlement Cost - The Company was a defendant in an action brought in San 
Diego County, California Superior Court on March 14, 1997 by Fred S. 
Ostern, the Company's former Vice President-Marketing.  The complaint 
alleged that the Company breached the employment agreement between the 
Company and Mr. Ostern by failing to pay Mr. Ostern the entire amount of 
the annual cash bonus for 1996 in accordance with the provisions of his 
employment agreement. On October 1, 1997, the Company entered into a 
settlement agreement with Mr. Ostern whereby the Company agreed to pay a 
corporation wholly owned by Mr. Ostern the aggregate sum of $350,000, 
consisting of three monthly payments of $50,000 beginning October 1, 1997, 
and the remaining $200,000 being due and payable in twelve monthly 
payments of $16,667 during 1998. In consideration of the settlement amount, 
the parties mutually agreed that Mr. Ostern's employment with the Company
be terminated.  Mr. Ostern also agreed to certain non-solicitation and
non-competition provisions through December 31, 1998.  At December 31, 1998,
the entire settlement amount had been paid to Mr. Ostern.

Threatened Litigation - In October 1997, Chevron U.S.A., Inc. ("Chevron") 
filed and subsequently dismissed without prejudice a claim for breach of 
contract against the Company arising from the 1996 toy car promotions.  
There has been no correspondence between the Company and Chevron since 
July 1998.  The Company vigorously denies any wrongdoing and believes it 
has substantial meritorious defenses if the matter is pursued by Chevron.  
While the effect if any, on future financial results is not subject to
reasonable estimation because considerable uncertainty exists, any
unfavorable outcome could materially affect the financial position of the
Company.

8.	STOCKHOLDERS' EQUITY

Public Offering - In connection with the Company's initial public offering in 
1994, the Company sold to the underwriter, for an aggregate of $55, a warrant
to purchase up to 110,000 Units. Each Unit consisted of one share of common
stock and one redeemable common stock purchase ("Warrant") exercisable at $6.50

                                     F-13<PAGE>

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

per share during the four year period commencing August 11, 1995.  The
underwriter's Warrant is exercisable initially at $9.90 per Unit (165% of the 
Offering price per Unit) for a period of four years commencing August 11, 
1995. On January 31, 1997, the Company elected to register the underwriter's 
Warrant by filing a Form S-3 Registration Statement, which was 
subsequently declared effective by the Securities and Exchange Commission 
on February 7, 1997.  In addition to the Warrant issued to the underwriter, 
the Company, through its unit offering, issued to public investors a total of 
1,301,673 Warrants.  Each Warrant entitles the holder to purchase one share 
of Common Stock for $6.50, during the four-year period commencing one 
year from the date of the Company's unit offering on August 11, 1994.  The 
Company may call the Warrants for redemption, at a price of $.01 per 
Warrant, on not less than 30 days' prior written notice to the warrantholders, 
if the last price of the Common Stock has been at least $9.75 per share for
the 20 consecutive trading days ending on the third day prior to the date on
which the notice of redemption is given.

Employee Stock Option Plan - In 1998 the Board of Directors of the 
Company adopted and the Company's stockholder's subsequently approved 
the 1998 Stock Option Plan (the "1998 Plan").  The 1998 Plan provides for 
awards to employees and non-employee directors of the Company up to an 
aggregate of 500,000 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.  Options generally become exercisable in 
installments of 33% per year on each of the first through the third 
anniversaries of the grant date and have a maximum term of ten years.  The 
1998 Plan also provided for the termination of the Company's 1994 Stock 
Option Plan, cancellation of each of the then outstanding options granted 
under the 1994 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 Plan.

A total of 7,500 and 225,050 options were granted in 1997 and 1998, 
respectively, under the 1998 Plan, excluding the cancellation and reissuance 
of 242,500 options from the 1994 Plan. 

The Company applies Accounting Principles Board Opinion No. 25, 
Accounting for Stock Issued to Employees, and related interpretations in 
accounting for its stock options. Accordingly, no compensation expense has 
been recognized for its stock-based compensation plans.  Had compensation 
cost for the Company's Option Plan and other issued stock options been 





                                      F-14<PAGE>

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

determined based upon the fair value at the grant date consistent with the
methodology prescribed under SFAS No. 123, "Accounting for Stock-Based 
Compensation," the Company's net income (loss) and earnings (loss) per 
share would have been reduced (increased) by approximately $161,000 and 
($169,000), or $.06 per share and $(.06) per share, for 1998 and 1997, 
respectively. The fair value of the options granted during 1998 is estimated
to range from $.68 to $1.09 on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: dividend yield 0%,
volatility of 53%, risk-free interest rate of 5.25%, assumed forfeiture
rate of 4%, and an expected life of 3 years.

The following table summarizes information concerning all currently 
outstanding and exercisable options as of December 31, 1998:

                OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE  
------------------------------------------------------  ----------------------
                                WEIGHTED 
                                AVERAGE       WEIGHTED                WEIGHTED
  RANGE                        REMAINING      AVERAGE                  AVERAGE
OF EXERCISE      NUMBER       CONTRACTUAL     EXERCISE     NUMBER     EXERCISE
  PRICES      OUTSTANDING     LIFE (YEARS)      PRICE    EXERCISABLE    PRICE
------------------------------------------------------------------------------
  $1-$2          401,550         7.57          $ 1.69      217,750      $ 1.69
  $2-$3           76,000         8.20          $ 2.61       30,000      $ 2.54
  $3-$6           75,000         6.58          $ 5.25       75,000      $ 5.25
                 -------                                   -------
                 552,550                                   322,750
                 =======                                   =======

The following table summarizes the Company's Employee Stock Option Plan 
activity for the years ended December 31, 1997 and 1998: 

                              NUMBER               PRICE           WEIGHTED
                                OF                  PER            AVERAGE 
                              SHARE               SHARES          PER SHARE
                             -------         --------------       ---------
    January 1, 1997          267,500         $5.25 to $8.00         $6.26
      Granted                  7,500                  $5.25         $5.25
      Exercised                   --                     --            --
      Canceled                (8,000)                 $8.00         $8.00
                             -------
    December 31, 1997        267,000         $5.25 to $8.00         $6.23
      Canceled 1994 Plan    (242,500)        $5.25 to $8.00         $6.23
      Reissued 1998 Plan     242,500                  $1.69         $1.69
      Granted                225,050         $1.69 to $2.69         $1.89
      Exercised               (7,500)                 $1.69         $1.69
      Canceled               (25,000)        $1.69 to $8.00         $5.97
                             -------
    December 31, 1998        459,550         $1.69 to $2.69         $1.81
                             =======

                                     F-15<PAGE>

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

Other Stock Options - On August 1, 1995, the Company entered into an 
agreement with ADR Management Group Ltd., ("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, an average 
monthly fee of $2,500 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 shares 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 shares issuable under the stock option were vested.  In August 1997, 
the Company entered into a new agreement with ADR Management Group 
("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 shares vested in amounts of 1,250 each
month commencing September 1997 until and including August 1998, all of which
shares are exercisable from the date of their vesting until August 2000.
In accordance with FAS 123, the Company valued the option at $16,200 using
the Black-Scholes option-pricing model, of which $6,300 and $9,900 was
recognized as compensation expense during 1997 and 1998.

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, 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.

9.	TRANSACTIONS WITH RELATED PARTIES

Employment Agreements - The Company is party to an employment 
agreement with Michael Favish, which provides that Mr. Favish will serve as 
President and Chief Executive Officer for an initial term of five years ending 
August 10, 1999. His base salary during 1997 and 1998 was $165,000 and 
has been increased to $190,000 in 1999.  In 1998, in conjunction with the 
adoption of the 1998 Stock Option Plan, Mr. Favish received 110,000 options 
with an exercise price of $1.69 per share which replaced an identical number 
of cancelled options issued from the terminated 1994 Stock Option Plan.  Mr. 
Favish was also granted 10,000 stock options in December 1998, vesting over 
a three-year period, at an exercise price of $2.39 per share.

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

Consulting Agreement - The Company was party to a consulting agreement with 
Mr. Weingarten, a director of the Company, in which he received $40,000 per
annum payable  through August 31, 1997, upon which the agreement expired.  
Mr. Weingarten resigned as a Director of the Company on January 27, 1998.

10.	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 1998, the Company matched $.50 of each $1.00 of employee contributions up 
to two percent of covered payroll. Employees are immediately fully vested in 
their contribution and vest in the Company contribution ratably over a five 
year period. The Company's contribution expense for the year ended December
31, 1997 and December 31, 1998 was $16,856, and $32,345, respectively.

11.	INCOME TAXES

The components of income tax expense were as follows for the year ended 
December 31, 1998:
                                    FEDERAL          STATE         TOTAL
                                  ----------       ---------     ---------
            Current               $   49,000       $  23,000     $  72,000
            Deferred                 350,000          11,000       361,000
                                  ----------       ---------     ---------
                                  $  399,000       $  34,000     $ 433,000
                                  ==========       =========     =========

There was no income tax expense for the year ended December 31, 1997.

The components of net deferred tax assets were as follows at December 31, 
1997 and 1998:
                                                    1997            1998
    Deferred tax assets:                        ------------     -----------
        Net operating loss carryforwards        $    820,000     $   498,000
        Employee benefit plans                        24,000          18,000
        Uniform capitalization of inventory cost      72,000          84,000
        Bad debt reserves                             65,000          63,000
        Inventory reserves                           503,000         435,000
        Impairment loss                               46,000          46,000
        State income taxes                             4,000          15,000
        Other                                         36,000          22,000
                                                ------------     -----------
            Total gross deferred tax assets        1,570,000       1,181,000
            Valuation allowance                   (1,068,000)     (1,045,000)
                                                ------------     -----------
                Net deferred tax assets              502,000         136,000
                                                ------------     -----------
    Deferred tax liabilities:
        Depreciation                                  51,000          46,000
                                                ------------     -----------
            Total deferred tax liability              51,000          46,000
                                                ------------     -----------
                Net deferred tax asset          $    451,000     $    90,000
                                                ============     ===========
                                      F-17<PAGE>

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

The valuation allowance is primarily attributable to the net operating loss
and deferred expenses created during the year ended December 31, 1997.  No 
benefit for these operating loss and deferred expenses has been recognized in 
the financial statements due to the uncertainty as to the future ability to 
realize these deferred assets in future periods.  No other valuation allowances 
were deemed necessary as all deductible temporary differences created prior 
to 1997 are expected to be utilized from the generation of future taxable 
income.  The Company evaluates a variety of factors in determining the 
amount of the deferred income tax assets to be recognized including the 
number of years the Company's operating loss and tax credits can be carried 
forward, the existence of taxable temporary differences, the Company's 
earnings history and its near-term earnings expectations.  Based upon the net 
income realized in 1998, and the expectation of continuing increases in its 
retail business, it is probable that future taxable income will be sufficient
to realize the $90,000 deferred tax asset on future tax returns.  

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

                                                    1997            1998
                                                ------------     -----------
     Expected statutory tax expense (benefit)   $   (951,000)    $   350,000
     Net tax effect of permanent differences           9,000           8,000
     State income taxes, net of Federal tax effect        --          22,000
     Adjustment to deferred tax asset                 62,000         (33,000)
     Valuation allowance                             880,000          37,000
     Alternative minimum tax                              --          49,000
                                                ------------     -----------
        Actual tax expense                      $         --     $   433,000
                                                ============     ===========

At December 31, 1998, the Company had net operating loss carryforwards for 
Federal income tax purposes expiring as follows:

            YEARS ENDING DECEMBER 31,              AMOUNT
            -------------------------           ------------
                    2007                        $    254,000
                    2012                           1,211,000
                                                ------------
                                                $  1,465,000
                                                ============

                                            




                                      F-18

</TABLE>