U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _________________
Commission file number 0 - 24608
---------------------------------
FOTOBALL USA, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 33 - 0614889
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3738 Ruffin Road, San Diego, California, 92123
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(Address of principal executive offices) (Zip Code)
(619) 467 - 9900
----------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes (X) No____
As of April 30, 1998, the Company had 2,691,742 shares of its common stock
issued and outstanding.
Transitional Small Business Disclosure Format Yes( ) No (X)
Page 1<PAGE>
FOTOBALL USA, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of December 31, 1997 and
March 31, 1998 3
Condensed Statements of Operations for the three months
ended March 31, 1997 and 1998 4
Condensed Statements of Cash Flows for the three months
ended March 31, 1997 and 1998 5
Notes to Condensed Financial Statements 6-9
Item 2. Management's Discussion and Analysis or
Plan of Operations 10-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
Page 2<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOTOBALL USA, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
December 31, 1997 March 31, 1998
----------------- --------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 764,855 $ 303,876
Accounts receivable less allowances
of $151,000 1,402,607 1,999,590
Inventories (Note 3) 2,476,815 2,424,028
Prepaid expenses and other 148,855 159,700
Deferred income taxes 150,000 120,100
------------ ------------
TOTAL CURRENT ASSETS 4,943,132 5,007,294
------------ ------------
PROPERTY AND EQUIPMENT, net 1,217,892 1,193,096
------------ ------------
OTHER ASSETS
Deferred income taxes 301,000 301,000
Deposits and other 115,382 142,491
------------ ------------
TOTAL OTHER ASSETS 416,382 443,491
------------ ------------
$ 6,577,406 $ 6,643,881
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of capital leases $ 90,182 $ 95,180
Accounts payable and accrued expenses 789,388 856,439
Settlement liability 200,000 150,000
------------ -------------
TOTAL CURRENT LIABILITIES 1,079,570 1,101,619
CAPITAL LEASES, net of current portion 229,930 226,465
------------ -------------
TOTAL LIABILITIES 1,309,500 1,328,084
------------ -------------
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 - 2,676,742
shares in 1997 and 2,691,742 shares in 1998 26,767 26,917
Additional paid-in capital 8,568,494 8,570,969
Accumulated deficit (3,327,355) (3,282,089)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 5,267,906 5,315,797
------------ -------------
$ 6,577,406 $ 6,643,881
============ =============
See accompanying notes to condensed financial statements.
Page 3<PAGE>
FOTOBALL USA, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31
------------------------------
1997 1998
------------------------------
SALES $ 3,601,385 $ 3,761,403
COST OF SALES 2,227,164 2,423,082
------------- -------------
GROSS PROFIT 1,374,221 1,338,321
------------- -------------
OPERATING EXPENSES
Royalties 118,779 235,925
Marketing 530,495 447,630
General and administrative 554,133 501,097
Depreciation and amortization 50,479 76,780
------------- -------------
TOTAL OPERATING EXPENSES 1,253,886 1,261,432
------------- -------------
INCOME BEFORE OTHER (INCOME)
EXPENSE AND INCOME TAX 120,335 76,889
------------- -------------
OTHER (INCOME) EXPENSE
Interest expense 12,815 9,806
Interest income (24,769) (8,083)
------------- -------------
TOTAL OTHER (INCOME) EXPENSE (11,954) 1,723
------------- -------------
INCOME BEFORE INCOME TAX 132,289 75,166
INCOME TAX EXPENSE 53,100 29,900
------------- -------------
NET INCOME $ 79,189 $ 45,266
============= =============
BASIC AND DILUTED INCOME PER SHARE $ .03 $ .02
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,691,710 2,691,842
============= =============
See accompanying notes to condensed financial statements.
Page 4<PAGE>
FOTOBALL USA, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
------------------------------
1997 1998
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 79,189 $ 45,266
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 55,817 81,067
Amortization of stock compensation expense -- 2,625
Changes in operating assets and liabilities:
Accounts receivable 6,290,678 (596,983)
Inventories (838,212) 52,788
Prepaid expenses and other (94,496) (10,846)
Deferred income taxes 40,800 29,900
Accounts payable and accrued expenses (931,276) 17,051
Income taxes payable (107,700) --
----------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 4,494,800 (379,132)
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (92,305) (28,121)
Increase in long-term deposits -- (27,109)
----------- -------------
NET CASH USED IN INVESTING ACTIVITIES (92,305) (55,230)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligations (11,660) (26,617)
Repayment of short-term credit facilities (1,825,000) --
----------- -------------
NET CASH USED IN FINANCING ACTIVITIES (1,836,660) (26,617)
----------- -------------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS 2,565,835 (460,979)
CASH AND EQUIVALENTS, Beginning of period 981,554 764,855
----------- -------------
CASH AND EQUIVALENTS, End of period $ 3,547,389 $ 303,876
=========== =============
See accompanying notes to condensed financial statements
Page 5<PAGE>
FOTOBALL USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
1. CONDENSED FINANCIAL STATEMENTS
The condensed balance sheet as of March 31, 1998, the condensed statements
of operations for the three months ended March 31, 1997 and 1998, and the
condensed statements of cash flows for the three months ended March 31, 1997
and 1998 have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal reoccurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted, pursuant to the rules and regulations of the Securities and
Exchange Commission. It is suggested that these condensed financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997.
The Company adopted SFAS No. 128, "Earnings per Share" effective for its
fiscal year ended December 31, 1997. The adoption of this statement did not
change the previously reported net income per share for the three months ended
March 31, 1997, as the conditions necessary to cause the Company's redeemable
common stock purchase warrants to be exercised were not met.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results of operations to be expected for the year
ending December 31, 1998.
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. 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 Professional Baseball, NFL and, to a lesser extent,
Colleges. The Company's licensing arrangements expire at various times
through December 31, 1999 except for the NFL Team Logo license, which the
Company has received a letter of intent extending the license through
Page 6<PAGE>
FOTOBALL USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(continued)
March 31, 2000. The following table summarizes, in descending order of 1997
revenue contribution, the Company's significant license agreements and their
terms:
Licensor Product Term Expiration Date
-------- ------------ ---------------
MLBP Baseball 3 years December 31, 1999
MLBPA Baseball 1 year (2 year option) December 31, 1999
NFL Team Logo Football 2 years March 31, 2000
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 Professional Baseball
or the NFL, could have a material adverse effect on the Company's business.
Dependence on Promotions Business - The Company's promotions business
depends primarily upon a series of one-time projects with its customers.
Although the Company has had repeat business from certain promotions
customers, there can be no assurance that the Company will be able to
continue its relationships with its promotions customers or attract new
promotions customers to generate sufficient revenues to operate profitably.
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 $2,438,000, or 20% of total sales. During the year ended December 31, 1996,
76% of the Company's sales was derived from sales of the Company's
promotional products, of which one customer accounted for aggregate sales of
$14,000,000, or 54% of sales.
Variability of Gross Margins - Historically, the Company has realized
higher gross margins on its retail sales as compared to promotional sales.
In 1996, the Company realized gross margins of 29% as a result of $14,000,000
of low margin toy promotion sales. In 1997, the Company realized gross
margins of 26% as a result of a $1,175,000 provision for discontinued and
excess inventory. Excluding this operating charge, gross margins were 36% in
1997, which is consistent with the margins realized on the Company's
sports-related sales in 1996. 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 experienced, and expects to continue to
experience, significant quarter-to-quarter variability in its sales and net
income. This is due in part to the seasonality of its licensed sports product
business combined with a significant concentration of its business from
baseball. Historically, the Company has derived a significant amount of
sales from baseball-related products, representing 35% and 47% of the
Page 7<PAGE>
FOTOBALL USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(continued)
Company's sales during the years ended December 31, 1996 and 1997,
respectively. As such, its sales tend to be concentrated during the second
and third quarters which coincides with the baseball season. Baseball-related
sales as a percentage of total sales decreased significantly in 1996 due to
the $14,000,000 of toy car sales realized in 1996. Excluding the toy car
sales, baseball-related sales accounted for 76% of the Company's core sports
product sales in 1996. The Company believes that the continuing decrease in
the dependence upon baseball-related sales during the past several years will
continue in the future, with the introduction of new product lines including
new vulcanized rubber sports balls. Baseball-related sales, however are
expected to remain a significant percentage of total sales for the
foreseeable future. The second factor which significantly contributes to the
variability of the Company's operations is its dependence on promotions
business as more fully explained above.
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 maintains "key man"
life insurance on the life of Michael Favish in the amount of $1,000,000.
Dependence on Suppliers - In 1997, the Company purchased approximately 97%
of its raw material, consisting primarily of synthetic baseballs, footballs
and basketballs, hockey pucks and Fototires, from six companies located in
China, with one manufacturer accounting for 52% of total raw material
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 are valued at the lower of cost or market. Cost is determined
on the first-in first-out (FIFO) method. Inventories consist of the
following:
December 31, 1997 March 31, 1998
----------------- --------------
Finished goods $ 970,886 $ 1,068,954
Raw material 2,680,830 2,513,134
Allowance for discontinued
and excess inventory (1,174,901) (1,158,060)
---------------- --------------
Total inventory $ 2,476,815 $ 2,424,028
================ ==============
Page 8<PAGE>
FOTOBALL USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(continued)
4. 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. Discussions between the Company
and Chevron to resolve the matter are on-going. 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 estimates because considerable
uncertainty exists, any unfavorable outcome could materially affect the
financial position of the Company.
Page 9<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Results of Operations:
The following table sets forth certain operating data (in dollars and as a
percentage of the Company's sales) for the periods presented: (unaudited)
Three Months Ended
March 31,
-------------------------------------------
1997 1998
-------------------------------------------
Sales $ 3,601,385 100% $ 3,761,403 100%
Cost of Sales 2,227,164 62 2,423,082 64
Operating Expenses 1,253,886 35 1,261,432 34
Operating Income 120,335 3 76,889 2
Interest Expense 12,815 1 9,806 1
Interest Income 24,769 1 8,083 1
Income Before Income Tax 132,289 4 75,166 2
Income Tax Expense 53,100 1 29,900 1
Net Income $ 79,189 2% $ 45,266 1%
Three Months Ended March 31, 1997 and 1998:
Sales:
Sales were $3,761,000 for the three months ended March 31, 1998, an
increase of 4% from sales of $3,601,000 for the three months ended March 31,
1997. The increase was due to the Company's retail business realizing
substantial increases over the prior year period. Retail sales were $2,796,000
for the three months ended March 31, 1998, an increase of 77% from retail sales
of $1,585,000 for the three months ended March 31, 1997. Contributing to this
growth was an increase of $877,000, or 275%, in entertainment and amusement
park related sales, including $558,000 of "recreational" sports ball sales to
Six Flags theme parks. All of the Company's retail product lines with the
exception of soccer experienced sales growth in excess of 20%, with the
greatest contribution from the Company's new recreational sports ball product
category. The Company expects that, in 1998, its retail business should
continue to grow at a rate comparable to prior years and should represent a
significant percentage of the Company's aggregate sales. The Company will,
however, continue to pursue promotions business aggressively, focusing on
leveraging its sports league relationships. For the three months ended
March 31, 1998, promotion sales were $965,000, or 26% of sales, as compared
to promotion sales of $2,017,000, or 56% of sales, for the three months ended
March 31, 1997. Promotion sales decreased by 52% or $1,052,000 due to a
$1,690,000 hockey puck promotion in 1997, which was non-recurring. Promotion
sales of $965,000 realized during the three months ended March 31, 1998 were
derived from several customers instead of primarily from one customer, which
the Company believes is reflective of the expanding breadth of the Company's
customer base.
Page 10<PAGE>
Gross Profit:
Gross profit was $1,338,000 for the three months ended March 31,
1998, a decrease of 3% from gross profit of $1,374,000 for the three months
ended March 31, 1997. Gross profit decreased both on an absolute basis and as
a percentage of sales due to lower margins realized on amusement park related
sales, which were priced to gain market share in this industry.
Notwithstanding these lower gross margins, amusement park related sales
realized only nominally less in net margins as compared to retail souvenir
product sales due to the absence of royalties and commission expenses from
amusement park related sales. As previously noted, the Company's gross
margins fluctuate, particularly between quarters, based on several factors
including sales and product mix (See Footnote 2, "Notes to Condensed Financial
Statements"). The Company anticipates that its gross margins for the fiscal
year ending December 31, 1998 should be consistent with the gross margins
realized during the first quarter of 1998.
Operating Expenses:
Operating expenses were $1,261,000, or 34% of sales, for the three
months ended March 31, 1998, as compared to operating expenses of
$1,254,000, or 35% of sales, for the three months ended March 31, 1997. The
increase in operating expenses on an absolute basis was due to an increase in
royalties expenses and depreciation and amortization expense offset in part by
lower marketing and general and administrative expenses.
Royalties expenses were $236,000 for the three months ended March 31,
1998, an increase of 98% from royalties expenses of $119,000 for the three
months ended March 31, 1997. Royalties expenses as a percentage of sales
increased to 6% of sales for the three months ended March 31, 1998 from 3% of
sales for the three months ended March 31, 1997, due to the increased
concentration of royalty bearing sales in 1998 as compared to 1997. Royalties
expense increased in 1998 in part due to the significant increase in retail
sales which generally have a royalty obligation. Additionally, approximately
$2,000,000 of promotional sales in 1997 had no royalty obligation. As
previously noted, the Company is dependent upon its licensing arrangements and
their successful renewal (See Footnote 2, "Notes to Condensed Financial
Statements"). Most of the Company's significant licenses expire on December
31, 1999 except for the NFL Team Logo license, for which the Company has
received a letter of intent extending the license through March 31, 2000. The
Company anticipates that royalties expenses as a percentage of sales for the
fiscal year ending December 31, 1998 should be consistent with the percentage
of royalties expenses realized during the first quarter of 1998.
Marketing expenses were $448,000 for the three months ended March
31, 1998, a decrease of 15% from marketing expenses of $530,000 for the three
months ended March 31, 1997. Marketing expenses as a percentage of sales
decreased to 12% of sales for the three months ended March 31, 1998 from 15%
of sales for the three months ended March 31, 1997. The decrease in marketing
expenses of $83,000 was primarily the result of lower wages and related
expenses and lower travel and advertising costs. The Company anticipates that
marketing expenses for the year ending December 31, 1998, should be lower than
marketing expenses in 1997 and consistent with the percentage of marketing
expenses realized during the first quarter of 1998.
Page 11<PAGE>
General and administrative expenses were $501,000 for the three months
ended March 31, 1998, a decrease of 10% from general and administrative
expenses of $554,000 for the three months ended March 31, 1997. This $53,000
decrease is a result of several factors, including lower legal and
professional services costs. The Company anticipates that general and
administrative expenses for the year ending December 31, 1998 should be
considerably lower than general and administrative expenses incurred in 1997,
but moderately higher than the annualized amount of general and administrative
expenses incurred in the first quarter of 1998.
Other Income (Expense):
Interest expense was $10,000 for the three months ended March 31,
1998, a decrease of $3,000 from interest expense of $13,000 for the three
months ended March 31, 1997. The decrease reflects a reduction in interest
charges on the line of credit, combined with a decrease in interest charges
from capitalized leases. Total capitalized equipment and machinery leases
were $321,000 at March 31, 1998, a decrease of $9,000 from $330,000 at
March 31, 1997. The Company anticipates that interest expense in future
periods will increase moderately reflecting additional capital lease
purchases as more fully explained in "Liquidity and Capital Resources" below.
Interest income was $8,000 for the three months ended March 31, 1998,
a decrease of $17,000 from interest income of $25,000 for the three months
ended March 31, 1997. This decrease is due to the Company's average cash
balances available for investment being lower during the three months ended
March 31, 1998 as compared to the three months ended March 31, 1997. The
Company anticipates that interest income in 1998 will be substantially lower
than in 1997 due to lower average cash balances available for investment.
Liquidity and Capital Resources:
The Company's net working capital increased by $43,000 from
December 31, 1997 to March 31, 1998, to a net working capital surplus of
$3,906,000 at March 31, 1998 from a net working capital surplus of $3,863,000
at December 31, 1997. Cash flow from operations decreased by $4,874,000 from
cash provided by operations of $4,495,000 for the three months ended March 31,
1997 to cash used in operations of $379,000 for the three months ended March
31, 1998. This decrease was primarily the result of changes in accounts
receivable during the periods. Accounts receivable in 1997 decreased
significantly due to collection of a $5,600,000 accounts receivable, resulting
from a 1996 toy car promotion. In contrast, account receivable increased
during the three months ended March 31, 1998 reflecting increased sales
during the period.
Cash and equivalents aggregated $304,000 at March 31, 1998, a
decrease of $461,000 from cash and equivalents of $765,000 at December 31,
1997. This decrease is primarily due to the significant increase in accounts
receivable resulting from the higher sales during the period. The Company also
utilized cash resources for the acquisition of non-current assets, including
property and equipment. For the next twelve months, the Company anticipates
that its capital expenditure requirements will approximate $250,000, which will
be used to purchase additional product molds, production machinery, and office
and computer equipment. It is anticipated that a significant amount of the
Company's capital expenditures will be financed through capital leases.
Page 12<PAGE>
At March 31, 1998, the Company has commitments for minimum
guaranteed royalties under licensing agreements totaling $764,000 in the
aggregate through 2000, of which $321,000 is due at various times during 1998.
Given the Company's operating profits to date and anticipated increases in
retail product sales, management expects these guaranteed royalties to be
funded from operating cash flows.
In December 1995, the Company entered into a one year credit agreement
with Scripps Bank. This revolving line of credit facility (the "credit
line") in the amount of $1,000,000 is collaterized by assets of the Company
and actual borrowings are limited to available collateral, as defined in the
agreement. Borrowings under the line of credit 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. In November 1996, the credit line was increased to
$2,000,000 and was extended to April 15, 1998, with the same terms. In
February 1998, Scripps Bank renewed the credit line in the amount of
$1,500,000 expiring on October 15, 1998. The bank also 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 was no
borrowings under the credit line at March 31, 1998, however, the Company
anticipates borrowing from the credit line during the quarterly period ending
June 30, 1998.
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
1998.
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 1998, overall sales
trends, gross margin trends, cost reduction strategies and their results, the
Company's expectations as to funding its capital expenditures and operations
during 1998, and other statement 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 and those included in the Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997 are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in or implied
by the statements.
Page 13<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K for the three months ended
March 31, 1998 - None
Page 14<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FOTOBALL USA, INC
-----------------------------------
(registrant)
Dated: May 15, 1998 BY: /s/ Michael Favish
-----------------------------
Michael Favish
President and Chief Executive Officer
Dated: May 15, 1998 BY: /s/ David G. Forster
---------------------------------
David G. Forster
Executive Vice President-Finance,
Treasurer and Chief Financial Officer
(Principal Accounting Officer)
Page 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMA-
TION EXTRACTED FROM THE FINANCIAL STATEMENTS
CONTAINED IN THE FOTOBALL USA, INC. FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 303,876
<SECURITIES> 0
<RECEIVABLES> 2,150,866
<ALLOWANCES> 151,276
<INVENTORY> 2,424,028
<CURRENT-ASSETS> 5,007,294
<PP&E> 2,345,668
<DEPRECIATION> 1,152,572
<TOTAL-ASSETS> 6,643,881
<CURRENT-LIABILITIES> 1,101,619
<BONDS> 0
0
0
<COMMON> 26,917
<OTHER-SE> 8,570,969
<TOTAL-LIABILITY-AND-EQUITY> 6,643,881
<SALES> 3,761,403
<TOTAL-REVENUES> 3,761,403
<CGS> 2,423,082
<TOTAL-COSTS> 1,261,432
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,806
<INCOME-PRETAX> 75,166
<INCOME-TAX> 29,900
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<NET-INCOME> 45,266
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
