UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
----- EXCHANGE ACT OF 1934

For the Fiscal Year Ended January 3, 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 0-19848
FOSSIL, INC.
(Exact name of registrant as specified in its charter)

Delaware 75-2018505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2280 N. Greenville Avenue
Richardson, Texas 75082
(Address of principal executive (Zip Code)
offices)

Registrant's telephone number, including area code: (972) 234-2525

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
(Title of Class)
------------------------------

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
------

The aggregate market value of Common Stock held by nonaffiliates of the
registrant, based on the sale trade price of the Common Stock as reported by the
Nasdaq National Market on March 31, 1998, was $178,015,815. For purposes of this
computation, all officers, directors and 10% beneficial owners of the registrant
are deemed to be affiliates. Such determination should not be deemed an
admission that such officers, directors or 10% beneficial owners are, in fact,
affiliates of the registrant. As of March 31, 1998, 13,644,367 shares of Common
Stock were outstanding (pre-split).

DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive proxy statement in connection with the Annual
Meeting of Stockholders to be held May 27, 1998, to be filed with the Commission
pursuant to Regulation 14A, and the Company's Annual Report to Stockholders are
incorporated by reference into Part III of this report.

PART I

Item 1. Business

General

Fossil, Inc. (the "Company") is a Delaware corporation formed in
December 1991 and is the successor to a Texas corporation formed in 1984. In
1993, the Company completed an initial public offering (the "Offering") of
2,760,000 shares of common stock, par value $.01 (the "Common Stock").

The Company's principal executive offices are located at 2280 N.
Greenville Avenue, Richardson, Texas 75082, and its telephone number at such
address is (972) 234-2525.

The Company designs, develops, markets and distributes fashion watches
and accessories, including sunglasses, small leather goods, belts and handbags,
principally under the FOSSIL(R), RELIC(R) and FSL(TM) brand names. The Company
designs, manufactures and markets a line of limited edition watches bearing the
trademarks and logos of various entities, as well as contracts with retailers
and other customers for the manufacture of watches for sale under private label.

The Company conducts substantially all of its United States operations
through Fossil Partners, L.P. ("Partners"), a Texas limited partnership formed
in August 1994, of which the Company is the sole general partner. The sole
limited partner of Partners is Fossil Trust, a Delaware business trust, an
indirect wholly owned subsidiary of the Company, formed in August 1994. The
Company's operations in the state of New York are conducted by Fossil New York,
Inc., a Delaware corporation, a wholly owned subsidiary of the Company. The
Company's outlet stores are leased and operated by Fossil Stores I, Inc., a
Delaware corporation, a wholly owned subsidiary of the Company formed in
November 1994. The Company's retail stores are leased and operated by Fossil
Stores II, Inc., a Delaware corporation, a wholly owned subsidiary of Fossil
Stores I, Inc., formed in November 1994. In addition, certain merchandising
activities of the Company are conducted through Arrow Merchandising, Inc., a
Texas corporation, a wholly owned subsidiary of the Company formed in August
1992.

The Company's operations in Hong Kong relating to the procurement of
watches from various manufacturing sources are conducted by Fossil (East)
Limited ("Fossil East"), a wholly owned subsidiary of the Company organized
under the laws of Hong Kong and acquired by the Company in 1992. Fossil Europe
B.V. ("Fossil B.V.") a Netherlands holding company established in May 1993, is a
wholly owned subsidiary of the Company. Fossil Europe GmbH ("Fossil GmbH") is a
wholly owned German subsidiary of Fossil B.V., which markets and resells the
Company's products throughout Europe. Fossil Italia, S.r.l. ("Fossil Italy"), a
wholly owned Italian subsidiary of Fossil B.V., was formed in June 1994 and
markets and sells the Company's products in Italy. Fossil France EURL, S.a.r.l.
("Fossil France") and Fossil U.K. Ltd. ("Fossil UK"), wholly owned subsidiaries
of Fossil B.V., were formed in 1995 to market and sell the Company's products in
France and the United Kingdom, respectively. In April 1996, the Company
acquired an 81% interest in Fossil Japan, Inc. ("Fossil Japan") which acts as
the distributor of the Company's products in Japan. In 1997, the Company
discontinued sales in the U.K. through Fossil UK. Fossil Spain, S. A.("Fossil
Spain"), a wholly owned subsidiary of Fossil B.V., was formed in 1996 and
markets and sells the Company's products in Spain.

Forward-Looking Information

The statements contained in this Annual Report on Form 10-K ("Annual
Report") that are not historical facts, including, but not limited to,
statements found in this Item 1. Business and Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations, are
forward-looking statements and involve a number of risks and uncertainties. The
actual results of the future events described in such forward-looking statements
in the Annual Report could differ materially from those stated in such
forward-looking statements. Among the factors that could cause actual results to
differ materially are: general economic conditions, competition, government
regulation and possible future litigation, as well as the risks and
uncertainties discussed in this Annual Report, including, without limitation,
the portions referenced above, and the risks and uncertainties set forth on the
Company's Current Report on Form 8-K dated March 31, 1997.

Industry Overview

Watch Products

The Company believes that the current market for watches in the United
States can be divided into three segments. One segment of the market consists of
fine watches characterized by high fashion and internationally known brand
names, such as Concord, Piaget and Rolex. Watches offered in this segment are
often manufactured in Switzerland and are sold by trade jewelers and in the fine
jewelry departments of better department stores and other purveyors of luxury
goods at retail prices ranging from $150 to $20,000. A second segment of the
market consists of watches sold by mass marketers, which include certain watches
sold under the Timex brand name as well as certain watches sold by Armitron
under various brand names and labels. Retail prices in this segment range from
$5 to $40.

The third segment of the market consists of moderately priced watches
characterized by contemporary fashion and well known brand names. Moderately
priced watches are typically manufactured in Japan or Hong Kong and are sold by
department stores and specialty stores at retail prices ranging from $40 to
$150. The Company believes that this segment in turn can be divided into two
discrete sectors that are competitive with each other only to a limited extent.
One sector of the moderately priced market segment is targeted by companies that
generally offer conservatively styled time pieces under well known brand names
such as Seiko and Citizen. The second sector of this market segment is targeted
by the Company and its principal competitors, including the companies that
market watches under the Anne Klein II, Guess? and Swatch brand names, whose
products attempt to reflect emerging fashion trends in accessories and apparel.
Some of the watches in this sector are manufactured under license agreements
with companies that market watches under various brand names, including Guess?,
Kenneth Cole and Nautica. The Company believes that one reason for the growth of
this sector has been that fashion-conscious consumers have increasingly come to
regard branded fashion watches not only as time pieces but also as fashion
accessories. This trend has resulted in consumers owning multiple watches that
may differ significantly in terms of style, features and cost.

Fashion Accessories

The Company believes that the fashion accessories market in
the United States includes products such as small leather goods,
handbags, belts, eyewear, neckwear, underwear, lounge wear, costume
jewelry, gloves, hats, hosiery and socks. These fashion accessory
products are generally marketed through mass merchandisers,
department stores and specialty shops. Fashion accessories for both men

and women are sold at low, moderate and higher price points. Lower price
point items are typically retailed through mass merchandisers. Higher
price point items are typically sold in moderate and better department stores
and specialty shops and include products offered by Coach, Dooney & Burke,
Ralph Lauren and Donna Karan.

Moderately priced fashion accessories are typically marketed in
department stores and are characterized by contemporary fashion and well known
brand names. Fossil currently offers small leather goods, belts and eyewear for
both men and women, men's underwear and lounge wear, as well as handbags,
through department stores and specialty retailers in the moderate to
upper-moderate price range. Companies such as Calvin Klein, Tommy Hilfiger,
Swank, Guess?, Nine West, Kenneth Cole, and Liz Claiborne currently operate in
this market. The Company believes that one reason for the growth in this line of
business is that consumers are becoming more aware of accessories as fashion
statements, and as a result, are purchasing brand name, quality items that
complement other fashion items. The Company emphasizes its fashion accessories
as a natural complement to the core watch business by offering consumers the
same high quality and value that are associated with other FOSSIL brand
products. The Company generally markets its fashion accessory lines through the
same distribution channels as its watch business, using similar in-store
presentations, graphics and packaging.

Business Strategy

The Company's business strategy is designed to achieve further growth
in its watch and fashion accessories businesses and to capitalize on growing
consumer awareness of the FOSSIL, RELIC and FSL brand names by expanding the
scope of its product offerings to include additional categories of fashion
accessories. The Company intends to seek further growth in its watch business by
increasing consumer awareness of, and sales of the products marketed under, the
FOSSIL, RELIC and FSL brand names, expanding the scope of its product offerings
through the introduction or licensing of new categories of fashion accessories
that would complement its existing products, and placing increased emphasis on
growth in selected international markets. The Company also intends to seek
further growth in its accessories business by broadening its domestic
distribution channels and by introducing accessories in selected international
markets. In order to expand the scope of its product offerings, the Company may
in the future introduce additional categories of fashion accessories that would
complement its existing products.

The following are the principal elements of the Company's business
strategy:

Brand Development. The Company has established the FOSSIL and RELIC
brand names and images to reflect a theme of fun, fashion and humor, and
believes that both the FOSSIL and RELIC brand names have achieved growing
acceptance among fashion-conscious consumers in their target markets.

Product Value. The Company's products provide value to the consumer
by offering high quality components and features at moderate prices. The
Company's products offer a variety of distinctive details and treatments that
provide value to the customer at suggested retail prices generally below
competitive products of comparable quality.

Fashion Orientation. The Company attempts to stay abreast of emerging
lifestyle and fashion trends affecting accessories and apparel, and it responds
to those trends by making adjustments in its product lines as frequently as five
times each year.

Innovative Product Design. The Company differentiates its products
from those of its competitors principally through innovations in fashion
details, including variations in the treatment of watch dials, crystals, cases
and straps for the Company's watches and innovative treatments and details in
its other accessories.

Expansion of International Business. The Company is seeking to
achieve further growth in its international business through its international
subsidiaries as well as by expanding the Company's network of distributors in
selected international markets.

Introduction of New Product Categories. The Company may leverage its
design and marketing expertise to expand the scope of its product offerings
through the introduction or licensing of new categories of fashion accessories
that would complement its existing products.

Active Management of Retail Sales. The Company manages the retail
sales process by monitoring its customers' sales and inventories by product
category and style and by assisting in the conception, development and
implementation of their marketing programs. As a result, the Company believes it
enjoys close relationships with its principal customers, often allowing it to
influence the mix, quantity and timing of their purchasing decisions.

Close Relationships with Manufacturing Sources. The Company has
established and maintains close relationships with a number of watch
manufacturers located in Hong Kong and Japan. The Company believes that these
relationships allow it to quickly and efficiently introduce innovative product
designs and alter production in response to the retail performance of its
products.

Coordinated Product Promotion. The Company coordinates product
design, packaging and advertising functions in order to communicate in a
cohesive manner to its target markets the themes and images that it associates
with its products.

Personnel Development. The Company actively seeks to recruit and
train its design, advertising, sales, administrative and marketing personnel
to assist it in achieving further growth in its existing businesses and in
expanding the scope of its product offerings.

Cost Advantages. Because the Company does not pay royalties on the
watch, leather goods or sunglass products sold under the FOSSIL, RELIC and FSL
brand names, and because of cost savings associated with the location of its
headquarters and warehousing and distribution center in Richardson, Texas, the
Company believes that it enjoys certain cost advantages that enhance its ability
to provide better value yet achieve attractive profit margins.

Centralized Distribution. Substantially all of the Company's products
sold in the United States are distributed from its warehouse and distribution
center located in Richardson, Texas. The Company's products sold in Europe
generally are distributed from the Company's warehouse and distribution centers
located in Germany and Italy, and in Japan from the Company's warehouse and
distribution center in Tokyo. The Company believes that its distribution
capabilities enable it to reduce inventory risk and increase its flexibility in
meeting the delivery requirements of its customers.

Products

Watch Products

In 1986, the Company introduced FOSSIL watches, its flagship product.
The Company commenced its FOSSIL watch strap program in 1989, introduced its
RELIC watches in 1990 and introduced its FSL watches in 1995. Since 1986, the
Company has also contracted with retailers and other customers for the
manufacture of watches primarily for sale under private labels. Sales of the
Company's watches for fiscal years 1997, 1996 and 1995 accounted for
approximately 72.4%, 71.9% and 83.6% respectively, of the Company's gross sales.

FOSSIL Watches. The Company's FOSSIL watches are targeted at middle and
upper income consumers between the ages of 16 and 40 and are sold at retail
prices generally ranging from $45 to $120, with an average price of
approximately $73. The Company currently offers various categories of FOSSIL
watches, including Blue Teq, Dress, DRT(TM), Fossil Steel, Fossil Blue(R),
F2, Limited Edition, Skeleton, and Vintage watches. The Company believes that
its strategy of offering various categories of FOSSIL watches enables it to
market its watches to a wide range of consumers with differing tastes and
lifestyles. New lines of FOSSIL watches are introduced each year in January,
March, May, August and November. FOSSIL watches are sold through a diversified
distribution system which includes major department stores, such as
Federated/Macy's Department Stores, Dillard's, May Department Stores,
Mercantile Stores, Dayton Hudson, Proffitts and Nordstroms, as well as
specialty retail stores and independent distributors.

RELIC Watches. RELIC watches incorporate a number of the features found
in FOSSIL watches into a format suitable for lower priced fashion watches. RELIC
watches are targeted at mid-level income consumers and are sold at retail prices
generally ranging from $30 to $75, with an average price of approximately $55.
The Company currently offers various categories of RELIC watches, including
Dressy, Metal Sport, Moon, Novelty, Pendant, Pocket, RELIC Wet, Skeleton and
Sport watches. New lines of RELIC watches are introduced each year in
February, July and September. RELIC watches are sold principally through major
retailers, such as Ames Department Stores, Bealls, JCPenney, Kohl's,
Montgomery Ward, Sears, Service Merchandise, SRI and Uptons.

FSL Watches. FSL watches are sold at retail prices generally ranging
from $30 to $150, with an average price of approximately $60. The Company offers
both analog and digital watches under the FSL brand which combine high quality
engineering and fashion. New lines of FSL watches are introduced each year in
January, May and August and are sold through better department stores, specialty
gift and apparel stores and sports specialty stores.

Emporio Armani Orologi. In 1997, the Company entered into a multi-year,
worldwide license agreement with Giorgio Armani for the manufacture,
distribution and sale of a line of Emporio Armani watches. These products are
sold through better department stores, specialty retailers and jewelry stores at
retail prices generally ranging from $125 to $500.

Private Label and Premium Products. The Company designs, markets and
arranges for the manufacture of watches on behalf of certain retailers,
entertainment companies, theme restaurants and other corporate customers as
private label products or as premium and incentive items for use in various
corporate events. Under this arrangement, the Company performs
design and product development functions as well as acts as a
sourcing agent for its customers by contracting for the manufacture of

watches, managing the manufacturing process, inspecting the finished watches,
purchasing the watches and arranging for their shipment to the United States.
Certain of these services are provided for the Company through Fossil East.
The Company has recently expanded the scope of its private label business to
include other categories of accessories such as sunglasses, small leather
goods, gifts and clocks. The Company's private label products are currently
sold to certain retail chains and other customers. The Company's premium and
incentive products are sold to many Fortune 500 companies. Participation in the
private label and premium businesses provide the Company with certain
advantages, including increased manufacturing volume (which may reduce the
costs of manufacturing the Company's other watch products) and the
strengthening of business relationships with its manufacturing sources. These
lines provide income to the Company with reduced inventory risks and certain
other carrying costs.

Licensed Watches. The Company has entered into a number of licensing
agreements for the sale of collectible watches under the Company's brands. Under
these agreements, the Company designs, manufactures and markets the goods
bearing the trademarks, trade names and logos of various entities through major
department stores within the Company's channels of distribution. Sales of
collectible watches in 1997 included the NFL, Star Wars, the Beatles, Felix the
Cat, James Bond, Mickey & Co. and I Love Lucy.

Fashion Accessories

In order to leverage the Company's design and marketing expertise and
its close relationships with its principal retail customers, the Company has
developed a line of sunglasses, men's and women's small leather goods, men's and
women's belts, and handbags under the FOSSIL brand and leather goods under the
RELIC brand. The Company currently sells its sunglasses, small leather goods,
belts and handbags through a number of its existing major department store and
specialty retail store customers. These fashion accessories are typically
sold in locations adjacent to watch departments, which may lead to purchases by
persons who are familiar with the Company's FOSSIL watches. Sales of the
Company's accessory lines for fiscal years 1997, 1996 and 1995 accounted for
26.4%, 26.5% and 15.2%, respectively of the Company's total sales.

Sunglasses. In 1995, the Company introduced a line of sunglasses sold
under the FOSSIL brand name. The FOSSIL Sunwear collection offers designs for
both men and women. The sunglass line features optical quality lenses in both
plastic and metal frames, with classic and fashion retro styling as found with
other FOSSIL products. Suggested retail prices for the Company's sunglasses
generally range from $28 to $75 with an average price of $40.

Small Leather Goods and Belts. In 1992, the Company introduced
a line of small leather goods and belts for ladies sold under the
FOSSIL brand name. In July 1993, the Company introduced a line of small
leather goods for men under the FOSSIL brand name and expanded the
men's line to include belts in April 1994. These small leather goods
are made of fine leathers and include items such as mini-bags, coin
purses, key chains and wallets. Retail prices for the Company's small
leather goods generally range from $15 to $70, with an average price of $40.
Retail prices for the Company's men's and women's belts generally range from
$20 to $45 with an average price of $30.

Handbags. In 1996, the Company introduced a new line of FOSSIL
handbags. The Company's handbags are made of a variety of fine leathers and
other materials. Classic styles and a variety of creative designs. Retail
prices generally range from $35 to $170 with an average price of $100.

Licensed Products

In order to complement the Company's existing line of products and to
increase consumer awareness of the FOSSIL brand, the Company has entered into
various licensing agreements for other categories of fashion accessories and
apparel. These license agreements provide for the payment of royalties based on
a percentage of net sales and are subject to certain guaranteed minimum
royalties.

Men's Underwear and Lounge Wear. The Company entered into a multi-year
license agreement for the manufacture, marketing and sale of men's underwear,
sleepwear and lounge wear in the United States under the FOSSIL brand. This
product line was introduced in December 1997 and is available at better
department stores and specialty retailers in the United States.

Apparel. The Company also entered into a multi-year license agreement
for the manufacture, marketing and sale of various apparel items in Japan under
the FOSSIL brand. These products are scheduled to be introduced in 1998 and
include casual shirts, knit tops, pants, jackets and related separates for
everyday wear.

Future Products

The Company entered into a multi-year license agreement for the
manufacture, marketing and sale of outerwear in the United States under the
FOSSIL brand. This line is currently scheduled to be introduced in 1999. In
addition, the Company may expand its product offerings in the future to include
other accessory or apparel lines that would complement its existing products.

Design and Development

The Company's products are created and developed by the in-house design
staff for such products in cooperation with various outside sources, including
its manufacturing sources and component suppliers. Product design ideas are
drawn from various sources and are reviewed and modified by the design staff to
ensure consistency with the Company's existing product offerings and the themes
and images that it associates with its products. Senior management is actively
involved in the design process.

In order to respond effectively to changing consumer preferences, the
Company attempts to stay abreast of emerging lifestyle and fashion trends
affecting accessories and apparel. In addition, the Company attempts to take
advantage of the constant flow of information from the Company's customers
regarding the retail performance of its products. The design staff reviews
weekly sales reports provided by a substantial number of the Company's customers
containing information with respect to sales and inventories by product category
and style. Once a trend in the retail performance of a product category or
style has been identified, the design and marketing staffs review their
product design decisions to ensure that key features of successful products are
incorporated into future designs. Other factors having an influence on the
design process include the availability of components, the capabilities of the
factories that will manufacture the products and the anticipated retail prices
of and profit margins for the products.

The Company differentiates its products from those of its competitors
principally by incorporating into its product designs innovations in fashion
details, including variations in the treatment of dials, crystals, cases and
straps for the Company's watches and details and treatments of its other

accessories. In certain instances, the Company believes that such innovations
have allowed it to achieve significant improvements in consumer acceptance of
its product offerings with only nominal increases in manufacturing costs. The
Company believes that the substantial experience of its design staff will assist
it in maintaining its current leadership position in watch design and in
expanding the scope of its product offerings.

Manufacturing

The Company's products are manufactured to its specifications by
independent contractors and by companies in which the Company holds a majority
interest. Substantially all of the Company's watches are manufactured by
approximately 19 factories located primarily in Hong Kong, and to a lesser
extent in Japan and the United States Virgin Islands. Newtime, Ltd. ("Newtime"),
a Hong Kong corporation, and Amazing Time, Ltd. ("Amazing Time"), a Hong Kong
corporation are indirect wholly owned subsidiaries of the Company. In addition,
the Company holds a majority interest in Pulse Time Center Company, Ltd. ("Pulse
Time"), a Hong Kong corporation, and Trylink International Ltd. ("Trylink"),
a Hong Kong corporation. During fiscal year 1997, approximately 19.5% of the
Company's watches were manufactured by Pulse Time; 15.6% by Amazing Time;
approximately 15.6% by Trylink and 25.3% by Newtime. In addition, one other
factory accounted for more than 10% of the Company's watch supplies in 1997.

The Company's sunglasses are manufactured by approximately 18 factories
located in China, Hong Kong, Italy, Japan, Korea and Taiwan. The Company's
leather products are manufactured by approximately 23 factories located in Hong
Kong, Italy, Korea, the Philippines, Taiwan, Turkey and the United States.
Except for its interest in Pulse Time, Amazing Time, Trylink and Newtime, the
Company does not own or operate any manufacturing facilities. The Company does
not have long-term contracts with any of its manufacturing sources. All
transactions between the Company and its manufacturing sources are conducted on
the basis of purchase orders.

The principal components used in the manufacture of the Company's
watches are cases, crystals, dials, movements and straps. These components are
obtained by the Company's manufacturing sources from a large number of suppliers
located principally in Hong Kong, Japan, China, Taiwan, Italy and Korea. The
majority of the movements used in the manufacture of the Company's watches are
supplied by two principal vendors. No other single component supplier
accounted for more than 10% of component supplies in 1997.

Although the Company does not normally engage in direct
transactions with component suppliers, in some cases it actively
reviews the performance of such suppliers and makes
recommendations to its manufacturing sources regarding the sourcing of
components. The Company does not believe that its business is materially
dependent on any single component supplier.

The Company believes that its policy of outsourcing products allows it
to achieve increased production flexibility while avoiding significant capital
expenditures, build-ups of work-in-process inventory and the costs of managing a
substantial production work force. The Company believes that it has established
and maintains close relationships with a number of watch manufacturers located
in Hong Kong and Japan. In 1997, four separate watch manufacturers in which the
Company holds a majority interest, each accounted for 10% or
more of the Company's watch supplies. The loss of any one of these
manufacturers could temporarily disrupt shipments of certain of
the Company's watches. However, as a result of the number of suppliers
from which the Company purchases its watches, the Company believes

that it could arrange for the shipment of goods from
alternative sources within approximately 30 days on terms that are not
materially different from those currently available to the Company. Accordingly,
the Company does not believe that the loss of any single supplier, including
Pulse Time, Amazing Time, Trylink or Newtime would have a material adverse
effect on the Company's business. In general, however, the future success of the
Company will depend upon its ability to maintain close relationships with its
current suppliers and to develop long-term relationships with other suppliers
that satisfy the Company's requirements for price and production flexibility.

The Company's products are manufactured according to plans that reflect
management's estimates of product performance based on recent sales results,
current economic conditions and prior experience with manufacturing sources. The
average lead time from the commitment to purchase products through the
production and shipment thereof ranges from two to three months in the case of
watches, from three to six months in the case of sunglasses and from three to
four months in the case of leather goods. The Company believes that the close
relationships that it has established and maintains with its principal
manufacturing sources constitute a significant competitive advantage and allow
it to quickly and efficiently introduce innovative product designs and alter
production in response to the retail performance of its products.

Fossil East, a subsidiary of the Company, acts as the Company's
exclusive agent in Hong Kong. In such capacity, Fossil East is responsible for
overseeing the production of samples of new products, placing orders with
factories located in Hong Kong and China, monitoring manufacturing operations on
a daily basis, inspecting finished goods and coordinating the shipment of
finished goods. Fossil East also acts as the Company's payment agent in
purchasing products from the Company's manufacturing sources.

Quality Control

The Company's quality control program attempts to ensure that its
products meet the standards established by its design staff. Samples of products
are inspected by the Company prior to the placement of orders with manufacturing
sources to ensure compliance with its specifications. The operations of the
Company's manufacturing sources located in Hong Kong are monitored on a periodic
basis by Fossil East. Substantially all of the Company's watches and certain of
its other accessories are inspected by personnel of Fossil East or by the
manufacturer prior to shipment to the Company. In addition, the Company performs
quality control checks on its products upon receipt at the Company's facility.

Marketing and Promotion

The Company's in-house advertising department oversees the conception,
development and implementation of all aspects of the packaging, advertising,
marketing and sales promotion of the Company's products. The advertising staff
uses computer-aided design techniques to generate the images presented on
product packaging and other advertising materials. The Company believes that the
use of computers encourages greater creativity and reduces the time and cost
required to incorporate new themes and ideas into effective product packaging
and other advertising materials. Senior management is involved in monitoring the
Company's advertising and promotional activities to ensure that themes and ideas
are communicated in a cohesive manner to the Company's target audience.

The Company's current advertising themes aim at evoking
nostalgia for the simpler values and more optimistic outlook of the
1950s through the use of images of cars, trains, airliners and consumer

products that reflect the classic American tastes of the period. These images
are carefully coordinated in order to convey the flair for fun, fashion and
humor that the Company associates with its products.

The Company participates in cooperative advertising programs with its
major retail customers, whereby it shares the cost of certain of their
advertising and promotional expenses. An important aspect of the marketing
process involves the use of in-store visual support and other merchandising
materials, including packages, signs, posters and fixtures. Through the use of
these materials, the Company attempts to differentiate the space used to sell
its products from other areas of its customers' stores. In addition, the Company
frequently offers promotional gifts, such as T-shirts and caps, to consumers who
purchase its products. The Company also provides its customers with a large
number of preprinted, customized advertising inserts and from time to time
stages promotional events designed to focus public attention on its products.

In 1994, the Company introduced the Fossil Collectors Club. Club
members receive a special limited edition watch, T-shirt and official Club
membership card. Newsletters are produced quarterly to inform members of new
product launches and to provide information to members about FOSSIL
collectibles, trivia and upcoming store events. In 1995, the Fossil Collectors
Club was successfully launched in certain international markets as well.

The Company advertises, markets and promotes its products to potential
consumers through a variety of media, including catalog inserts, billboards and
print media. The Company has advertised from time to time with billboards and
other outdoor advertisements including bus panels in major metropolitan areas.
The Company also periodically advertises in national fashion magazines such as
GQ and Glamour, as well as in trade publications such as Women's Wear Daily and
Daily News Record.

Sales and Customers

The Company sells its products in approximately 15,000 retail locations
in the United States through a diversified distribution network that includes
department stores and other major retailers, as well as specialty retail stores.
The Company also sells its product in retail stores operated by Fossil located
at retail malls in the United States and sells certain of its products in Fossil
outlet stores located at selected outlet centers throughout the United States.
The Company also sells its products at retail locations in major
airports in the United States, on cruise ships and in FOSSIL retail stores and
kiosks in certain international markets. In addition, the Company
from time to time sells its products to certain off-price retailers in order to
manage current product offerings and inventory levels. The Company does not
have long-term contracts with any of its retail customers. All transactions
between the Company and its retail customers are conducted on the basis of
purchase orders, which generally require payment of amounts due to the Company
on a net 30-day basis.

For fiscal years 1997, 1996 and 1995, domestic department stores
accounted for 45.2%, 46.6% and 40.5% of the Company's net sales, respectively.
In addition, in the same periods, the Company's ten largest customers
represented approximately 45.0%, 47.0% and 46.0% of net sales, respectively. For
fiscal year 1996, Dillard's Department Stores accounted for 10% of the Company's
net sales. No other customer accounted for more than 10% of the Company's net
sales in fiscal years 1997, 1996 and 1995. Certain of the Company's customers
are under common ownership. Sales to the department store group under
common ownership by Federated Department Stores accounted for
approximately 10.8%, 11.1% and 11.8% of the Company's net sales
in fiscal years 1997, 1996 and 1995, respectively. No other

customer, when considered as a group under common ownership, accounted for
more than 10% of the Company's net sales in fiscal years 1997, 1996 and 1995.

Sales by the Company to off-price retailers accounted for approximately
1.0%, 2.7% and 2.2% of its net sales during fiscal years 1997, 1996 and 1995,
respectively. Off-price retailers include those customers to whom the Company
makes periodic or occasional sales of products at reduced prices. A majority of
the products sold to off-price retailers consist of watch styles that the
Company has eliminated or proposes to eliminate from its current product lines.

In 1995, the Company commenced operations of Fossil outlet stores at
selected outlet centers throughout the United States. The Company operated 27
outlet stores at the end of fiscal year 1997. These stores, which operate under
the FOSSIL name, carry some of the product that previously were sold by the
Company to off-priced retailers. The Company's products in such stores are
generally sold at discounts from 25% to 50% off the suggested retail price.

In 1996, the Company commenced operations of full priced Fossil retail
stores at some of the most prestigious retail malls in the United States. In
1997, the Company opened an additional three retail stores at the Galleria
(Houston, Texas), The Mall of America (Minneapolis, Minnesota), and Tuttle
Crossing (Columbus, Ohio). These stores, which operate under the FOSSIL name,
carry a full assortment of FOSSIL merchandise which is generally sold at the
suggested retail price.

In November 1995, the Company began offering various products for sale
to consumers through America Onlines's Market Place. The Company currently
offers product through a "storefront" on America Online that is connected to the
Company's website. These products include selected FOSSIL watches, sunglasses
and leather goods, as well as NFL and NBA licensed watches. In November 1996,
the Company established its own website at www.fossil.com. In addition to
offering selected FOSSIL products, the Company also provides Company news and
information, product annoucements and promotional contests on the website.

The Company historically has relied on in-house sales personnel,
instead of the independent sales representatives more typical in the industry.
The Company utilizes independent sales representatives, however, to help develop
the market for the FSL watch line into sports specialty stores and to expand the
distribution of RELIC watches to selected retailers and to promote the sale of
the Company's leather goods to certain specialty retailers. As of the end of
fiscal year 1997, the Company had 72 in-house sales and customer service
employees and 58 independent sales representatives. The Company's in-house sales
personnel receive a salary and, in some cases, a commission based on a
percentage of gross sales attributable to specified accounts. Independent sales
representatives generally do not sell competing product lines and are under
contracts with the Company that are generally terminable by either party upon 30
days' prior notice. These independent contractors are compensated on a
commission basis.

The Company's products are sold in over 70 countries through foreign
subsidiaries in which Fossil has an interest and through a network of
approximately 50 independent distributors operating in South and Central
America, the Carribean, Canada, the Far East, Australia and the Middle East.
Foreign distributors generally purchase products at uniform prices established
by the Company for all international sales and resell them to department stores
and specialty retail stores. The Company generally receives payment from its
foreign distributors in United States currency. In May 1993, the Company formed
Fossil B.V. which established Fossil GmbH to market and resell the Company's

products throughout Europe. Fossil GmbH resells the Company's products directly
to department stores or other retailers, and in certain countries, Fossil GmbH
also offers the Company's products through independent distributors. In 1994,
Fossil B.V. established Fossil Italy to market and sell the Company's products
in Italy. In 1995, Fossil B.V. established Fossil France and Fossil U.K. to
market and sell the Company's products in France and England, respectively.
During 1997, the Company appointed an independent distributor in the United
Kingdom and discontiued operations through Fossil UK. In 1996, Fossil B.V.
established Fossil Spain to market and sell the Company's products in Spain. In
April 1996, the Company acquired an 81% interest in Fossil Japan which acts as
the sole distributor of the Company's products in Japan. During the fiscal years
1997, 1996 and 1995, international and export sales accounted for 31%, 30% and
32% of net sales, respectively.

During the past several years, the retail industry has undergone
significant consolidation. As a result of these developments, department stores
and other major retailers have generally become more dependent on the resources
and market expertise of their suppliers. The Company believes that this
dependence has created opportunities for suppliers that provide superior service
to their retail customers and are able to manage the retail sales process
effectively. In order to take advantage of the opportunities presented by this
increasing dependence, the Company has developed an approach to managing the
retail sales process that involves monitoring its customers' sales and
inventories by product category and style and assisting in the conception,
development and implementation of their marketing programs. For example, the
Company reviews weekly selling reports prepared by certain of its principal
customers and has established an active electronic data interchange program with
certain of its customers. The Company also places significant emphasis on the
establishment of cooperative advertising programs with its major retail
customers. The Company believes that its management of the retail sales process
has resulted in close relationships with its principal customers, often allowing
it to influence the mix, quantity and timing of their purchasing decisions.

The Company believes that its sales approach achieves high retail
turnover in its products, which can result in attractive profit margins for its
retail customers. The Company believes that the resulting profit margins for its
retail customers encourage them to devote greater selling space to its products
within their stores and enable the Company to work closely with buyers in
determining the mix of products any store should carry. In addition, the Company
believes that the buyers' familiarity with the Company's sales approach should
facilitate the introduction of new products through its existing distribution
network.

The Company permits the return of damaged or defective
products. In addition, although it has no obligation to do so, the
Company accepts limited amounts of product returns from its customers in
certain other instances. Accordingly, the Company provides allowances for
the estimated amount of product returns. The allowances for product returns at
for the fiscal years 1997, 1996 and 1995 were $10,576,000, $8,854,000 and
$9,034,000, respectively. Since 1990, the Company has not experienced any
returns in excess of the aggregate allowances therefor.

Backlog

For fiscal year 1997, the Company had unfilled customer orders of
approximately $16,223,000 compared to $15,852,000 and $14,340,000 for fiscal
years 1996 and 1995, respectively. It is the practice of a substantial number of
the Company's customers not to confirm orders by delivering
a formal purchase order until a relatively short time prior to
the shipment of goods. As a result, the amounts shown above include
confirmed orders and orders that the Company believes will be confirmed by

delivery of a formal purchase order. A majority of such amounts represent orders
that have been confirmed. The remainder of such amounts represent orders that
the Company believes, based on industry practice and prior experience, will be
confirmed in the ordinary course of business. The Company's backlog at a
particular time is affected by a number of factors, including seasonality
and the scheduling of the manufacture and shipment of products. Accordingly,
a comparison of backlog from period to period is not necessarily meaningful
and may not be indicative of eventual actual shipments. In addition, the
increased use and reliance on the electronic data interchange program in recent
years has contributed to the decline in backlog in comparison to prior years.

Distribution

Upon completion of manufacturing, the Company's products are shipped to
its warehousing and distribution centers in Richardson, Texas, Italy, Japan and
Germany from which they are shipped to customers in their respective markets. In
1994, the Company consolidated its United States warehouse and distribution
facilities into a single facility which enhances the Company's inventory
management and distribution capabilities. In July 1997, the Company completed
construction of an additional warehouse and distribution facility adjacent to
its existing facility.

On March 12, 1997, the Dallas/Fort Worth International Airport Board
filed an application for authority to establish special purpose subzone status
at the Company's warehouse/distribution facilities in Richardson, Texas. The
establishment of the special purpose subzone was approved by the United States
Department of Commerce Foreign Trade Zone Board on December 3, 1997. As a result
of the establishment of the subzone, the Company enjoys certain economic and
operational advantages: (i) the Company may not have to pay duty on imported
merchandise until it leaves the subzone and enters the United States market,
(ii) the Company may not pay any United States duty on merchandise if the
imported merchandise is subsequently re-exported, and (iii) the Company may not
pay local property tax on inventory located within the subzone.

The Company maintains inventory control systems at its facilities which
enable it to track each item of merchandise from receipt to ultimate sale. A
significant number of products sold by the Company are pre-ticketed and bar
coded prior to shipment to its retail customers. The Company believes that its
distribution capabilities enable it to reduce inventory risk and increase its
flexibility in responding to the delivery requirements of its customers.

Warranty and Repair

The Company's Fossil watch products are covered by a limited warranty
against defects in materials or workmanship for a period of 11 years from the
date of purchase. The Company's sunglass line is covered by a one year limited
warranty against defects in materials or workmanship. Defective products
returned by customers are processed at the Company's warehousing and
distribution centers. In most cases, defective products under warranty are
repaired by the Company's personnel. Products under warranty that cannot be
repaired in a cost-effective manner are replaced by the Company at no cost to
the customer. The Company also performs watch repair services on behalf of
certain of its private label customers.

Governmental Regulations

Imports and Import Restrictions. The vast majority of the Company's
products are manufactured overseas in China, Hong Kong, Italy, Japan, Korea, the
Philippines, Taiwan and Turkey. The Company's arrangements with its
manufacturing sources are subject to the risks of doing business abroad.

The Company's products imported to the United States are subject to
United States customs duties and, in the ordinary course of its business, the
Company may from time to time be subject to claims by the United States Customs
Service for duties and other charges.

The United States and the countries in which the Company's products are
manufactured may, from time to time, impose new quotas, duties, tariffs or other
restrictions, or adversely adjust prevailing quotas, duty or tariff levels,
which could adversely affect the Company's operations and its ability to import
products at current or increased levels. In general, the Company cannot predict
the likelihood or frequency of any such events occurring or what effect such
events could have on its financial condition and results of operations.

The United States Trade Representative (the "USTR") has been directed
to designate those countries that deny adequate and effective intellectual
property rights or fair and equitable market access to United States firms that
rely on intellectual property. From the countries designated, the USTR is to
identify as "priority" foreign countries those countries where the lack of
intellectual property rights protection is most egregious and has the greatest
adverse impact on United States products. The USTR is directed to identify and
investigate as priority foreign countries only those that have not entered into
good faith negotiations or made significant progress in protecting intellectual
property. Where such an investigation does not lead to a satisfactory resolution
of such practices, through consultations or otherwise, the USTR is authorized to
take retaliatory action, including the imposition of retaliatory tariffs and
import restraints on goods from the priority foreign country.

The Company cannot predict whether any of the countries in which its
products are currently manufactured or any of the countries in which the Company
may manufacture its products in the future will be subject to an investigation
by the USTR. The Company cannot predict the likelihood, type or effect of any
trade retaliation as a result of such investigations. Trade retaliation in the
form of increased tariffs or quotas, or both, against products that are
manufactured on behalf of the Company now or in the future could increase the
cost or reduce the supply of such products available to the Company.

There have been a number of ongoing trade disputes between
the United States and China during which the United States has
threatened to impose tariffs and duties on some products imported from
China and to withdraw China's "most favored nation" status. There can be no
assurance that legislation will not be introduced in Congress seeking to place
restrictions on the renewal of China's most favored nation status or that China
will continue to enjoy such status in the future. If goods manufactured in China
enter the United States without the benefit of most favored nation treatment,
such goods will be subject to significantly higher duty rates. Any such
increased duties would increase the cost or reduce the supply of goods from
China, although the Company believes that it could replace such goods with items
manufactured in other countries at prices that would not materially affect its
profit margins. Accordingly, the Company believes that the expiration of China's
most favored nation status would not have a material adverse effect on the
Company's financial condition or results of operations.

In addition to the foregoing factors, the Company's import operations
may be adversely affected by political instability, foreign governmental
regulation, fluctuations in exchange rates and changes in economic conditions in
countries in which the Company's manufacturing sources are located, any of which
could result in the disruption of trade from exporting countries. The potential
effect of these factors on the Company may be heightened as a result of the fact
that substantially all of the Company's products are manufactured in, or sourced
from, Hong Kong, over which China resumed sovereignty in 1997. The Company
cannot predict the effect, if any, this event will have on its operations in
Hong Kong and there can be no assurances that Hong Kong will not experience
political, economic or social disruption as a result of the resumption of
Chinese sovereignty.

General. The Company's sunglass products are subject to regulation by
the United States Food and Drug Administration as medical devices. The Company
does not believe that compliance with such regulations is material to its
operations. In addition, the Company is subject to various state and federal
regulations generally applicable to similar businesses.

Trademarks

The Company has registered the FOSSIL and RELIC trademarks for use on
the Company's watches, leather goods and other fashion accessories, and has
applied for registration of the FSL trademark for use on the Company's watches
and other accessories in the United States. The Company has also registered or
applied for the registration of certain other marks used by the Company in
conjunction with the sale and marketing of its products and services. In
addition, the Company has registered certain of its trademarks, including
FOSSIL, RELIC and FSL, in certain foreign countries, including a number of
countries located in Europe, the Far East, the Middle East, South America and
Central America. The Company also has certain trade dress rights in, and has
applied for registration of, the distinctive rectangular tins in which the
Company packages the majority of its Fossil watch products. The Company regards
its trademarks and trade dress as valuable assets and believes that they have
significant value in the marketing of its products. The Company intends to
protect its trademarks and trade dress rights vigorously against infringement.

Competition

There is intense competition in each of the businesses in which the Company
competes. The Company's watch business competes with a number of established
manufacturers, importers and distributors such as Guess? Anne Klein II and
Swatch. In addition, the Company's leather goods and sunglass businesses compete
with a large number of established companies that have significantly greater
experience than the Company in designing, developing, marketing and distributing
such products. In all its businesses, the Company competes with numerous
manufacturers, importers and distributors who have significantly greater
financial, distribution, advertising and marketing resources than the Company.
The Company's competitors include distributors that import watches and
accessories from abroad, domestic companies that have established foreign
manufacturing relationships and companies that produce accessories domestically.

The Company competes primarily on the basis of style, price, value,
quality, brand name, advertising, marketing and distribution. In addition, the
Company believes that its ability to identify and respond to changing fashion
trends and consumer preferences, to maintain existing relationships and develop
new relationships with manufacturing sources, to deliver quality merchandise in
a timely manner and to manage the retail sales process are important factors in
its ability to compete.

The Company considers that the risk of significant new competitors is
mitigated to some extent by barriers to entry such as high startup costs and the
development of long-term relationships with customers and manufacturing sources.
During the past few years, it has been the Company's experience that better
department stores and other major retailers have been increasingly unwilling to
source products from suppliers who are not well capitalized or do not have a
demonstrated ability to deliver quality merchandise in a timely manner. There
can be no assurance, however, that significant new competitors will not emerge
in the future.

Employees

As the end of fiscal year 1997, the Company (excluding the Company's
foreign subsidiaries) had 472 full-time employees, including 65 in executive or
managerial positions, and the balance in design, advertising, sales, quality
control, distribution, clerical and other office positions. Also included in
this amount are 62 full-time employees of Fossil Stores I, Inc. and 15 full-time
employees of Fossil Stores II, Inc. As the end of fiscal year 1997, Fossil East
had 55 full-time employees, including 12 in managerial positions and the balance
in sampling, quality control, clerical and other office positions. As the end of
fiscal year 1997, Fossil GmbH had 132 full time-employees, including 5 in
managerial positions and the balance in sampling, quality control, clerical and
other office positions. As the end of fiscal year 1997, Fossil Japan had 26 full
time-employees, including 3 in managerial positions and the balance in sampling,
quality control, clerical and other office positions. As the end of fiscal year
1997, Fossil Italy had 29 full-time employees, Fossil France had one full-time
employee and Fossil Spain had seven full-time employees.

The Company has not entered into any collective bargaining agreements
with its employees. The Company believes that its relations with its employees
are generally good.

Item 2. Properties

In July 1994, the Company completed construction of its new corporate
headquarters located in a 150,000 square foot facility in Richardson, Texas. In
July 1997, the Company completed construction of a new 138,000 square foot
distribution center located on land immediately adjacent to its headquarters.
These facilities contain the general office, warehousing and distribution
functions of the Company and are located on approximately 20 acres of land. The
Company owns both facilities and the land on which each is located.

As the end of fiscal year 1997, the Company had entered into six lease
agreements for retail space at prime locations in the United States for the sale
of its full assortment of products. The leases, including renewal options,
expire at various times from 2005 to 2010 and provide for minimum annual rentals
above specified net sales amounts and for the payment of additional rent based
on a percentage of sales ranging from 6% to 8%. The Company is also required to
pay its pro rata share of the common area maintenance costs at each retail mall,
including, real estate taxes, insurance, maintenance expenses and utilities.

The Company also leases retail space at selected outlet centers throughout
the United States for the sale of its products. As the end of fiscal year 1997,
the Company had entered into 27 such leases. The leases, including renewal
options, expire at various times from 2005 to 2010, and provide
for minimum annual rentals and for the payment of additional rent
based on a percentage of sales above

specified net sales amounts ranging from 4% to 6%. The Company is also
required to pay its pro rata share of the common area maintenance costs at each
outlet center, including, real estate taxes, insurance, maintenance expenses and
utilities. The Company also leases showrooms in Atlanta, Chicago, Los Angeles
and New York City, which are used to display the Company's products to its
retail customers.

Fossil East leases approximately 37,600 square feet of office,
warehouse and assembly space in Hong Kong pursuant to a lease agreement that
expires in December 1999. Fossil GmbH leases approximately 12,000 square feet of
office and warehouse space in Erlstatt, Germany pursuant to a lease
agreement that expires in 2002. Fossil Italy leases approximately 2,800 square
feet of office space in Vicenza, Italy and an additional 3,100 square feet of
warehouse and storage space. Fossil Japan also leases warehouse and office space
in Tokyo, Japan. The Company believes that its existing facilities are well
maintained, in good operating condition and adequate for its current needs.

Item 3. Legal Proceedings

There are no legal proceedings to which the Company is a party or to
which its properties are subject, other than routine litigation incident to the
Company's business which is not material to the Company's consolidated financial
condition or results of operations.

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

No matter was submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year 1997.

PART II

Item 5.Market for the Registrant's Common Equity and Related Stockholder Matters

The Company's Common Stock is listed on the Nasdaq National Market
System under the symbol "FOSL." Quotation of the Company's Common Stock began on
the Nasdaq National Market on April 8, 1993.

The following table sets forth the range of quarterly high and low
sales prices per share of the Company's Common Stock on the Nasdaq National
Market for the fiscal years ended January 3, 1998 and December 31, 1996 as
adjusted to reflect a three for two stock split (the "3 for 2 Stock Dividend")
of the Company's Common Stock effected as a fifty percent (50%) stock dividend
declared on March 4, 1998, payable on April 8, 1998 to all stockholders of
record on March 25, 1998. Such adjusted prices have been rounded to the nearest
trading fraction on the Nasdaq National Market.

High Low
Fiscal year beginning January 1, 1997:

First Quarter $ 9 3/4 $ 7
Second Quarter 11 7/8 8 1/4
Third Quarter 15 1/2 11
Fourth Quarter 17 7/8 11

Fiscal year beginning January 1, 1996:

First Quarter $ 7 1/2 $ 4 1/2
Second Quarter 10 7/8 6 1/2
Third Quarter 9 3/4 4 7/8
Fourth Quarter 10 1/2 7 5/8

As of March, 31, 1998, the Company estimates that there were
approximately 1,800 beneficial owners of the Company's Common Stock,
represented by approximately 120 holders of record.

Dividend Policy. The Company expects that it will retain all available
earnings generated by its operations for the development and growth of its
business and does not anticipate paying any cash dividends in the foreseeable
future. Any future determination as to dividend policy will be made in the
discretion of the Board of Directors of the Company and will depend on a number
of factors, including the future earnings, capital requirements, financial
condition and future prospects of the Company and such other factors as the
Board of Directors may deem relevant.

The Company declared the 3 for 2 Stock Dividend on March 4, 1998,
effected as a fifty percent (50%) stock dividend payable on April 8, 1998 to all
stockholders of record on March 25, 1998.

During fiscal year 1995, the Company made principal payments in the amount
of $1,000,000 under promissory notes (the "Notes") in the principal amount of
$10,910,000 issued prior to the date of the Offering to Messrs. Tom
Kartsotis, Kosta Kartsotis and Alan D. Moore, a former director of the

Company. The Company used a portion of the proceeds of the Offering to
repay $8,910,000 principal amount of the Notes. The Company did not make any
other such payments or distributions in fiscal years 1997 and 1996.

Recent Sales of Unregistered Securities. Effective as of February 1,
1997, Fossil B.V. entered into an agreement to purchase all of the issued and
outstanding common stock of Fossil Italia from the minority stockholders in
exchange for the issuance of 128,109 shares of Common Stock of the Company,
without giving effect to the 3 for 2 Stock Dividend. Such securities were not
registered under the Securities Act of 1933, as amended, in reliance on the
exemption from registration provided under Section 4(2) thereof.

Item 6. Selected Financial Data

The information appearing under "Selected Consolidated Financial
Highlights" in the Fossil, Inc. 1997 Annual Report is incorporated herein by
reference.

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

The information appearing under "Management's Discussion" in the
Fossil, Inc. 1997 Annual Report is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

The information appearing under "Management's Discussion" in the
Fossil, Inc. 1997 Annual Report is incorporated herein by reference.

Item 8. Financial Statements and Supplemental Data

The information appearing under "Financial Information" in the Fossil,
Inc. 1997 Annual Report is incorporated herein by reference.

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

The Company has had no disagreements with its accountants to report
under this item.

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required in response to this Item is incorporated
herein by reference to the Company's proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report.

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

PART IV

Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K

(a) Documents filed as part of Report.

1. Financial Statements:

The Financial Statements appearing under "Financial Information" in
the Fossil, Inc. 1997 Annual Report are incorporated herein by reference.

2. Financial Statement Schedule:

The following Financial Statement Schedule and related Auditor's Report
are contained herein on pages S-1 and S-2 of this Report.

Schedule II - Valuation and Qualifying Accounts

3. Exhibits:

3.1 Amended and Restated Certificate of Incorporation of
Fossil, Inc. (incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, registration
no. 33-45357, filed with the Securities and Exchange
Commission).

3.2 Amended and Restated Bylaws of Fossil, Inc.(incorporated
by reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-1, registration no. 33-45357, filed
with the Securities and Exchange Commission).

3.3 Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of Fossil, Inc. (incorporated
by reference to Exhibit 3.1 of the Company's Report on
Form 10-Q for the quarterly period ended June 30, 1995).

10.1 (2) Fossil, Inc. 1993 Nonemployee Director Stock Option Plan
(incorporated herein by reference to Exhibit 10.1 of the
Company's Registration Statement of Form S-1, registration
no. 33-45357, filed with the Securities and Exchange
Commission).

10.2 (2) Fossil, Inc. 1993 Long-Term Incentive Plan (incorporated
herein by reference to Exhibit 10.2 of the Company's
Registration Statement of Form S-1, registration no.
33-45357, filed with the Securities and Exchange Commission).

10.3 (2) Fossil, Inc. 1993 Savings and Retirement Plan (incorporated
herein by reference to Exhibit 10.3 of the Company's
Registration Statement of Form S-1, registration no. 33-45357,
filed with the Securities and Exchange Commission).

10.4 (2) Description of Bonus Program (incorporated herein by
reference to Exhibit 10.4 of the Company's Registration
Statement of Form S-1, registration no. 33-45357, filed
with the Securities and Exchange Commission).

10.5 Non-Competition Agreement dated December 31, 1992 between
Fossil, Inc. and Mr. Jal S. Shroff (incorporated herein by
reference to Exhibit 10.12 of the Company's Registration
Statement of Form S-1, registration no. 33-45357, filed with
the Securities and Exchange Commission).

10.6 Amended and Restated Buying Agent Agreement dated
March 21, 1992 between Fossil, Inc. and Fossil East Ltd.
(incorporated by reference to Exhibit 10.13 of the Company's
Annual Report on Form 10-K for the year ended
December 31, 1993).

10.7 Amended and Restated Loan Agreement dated August 31, 1994, by
and between First Interstate Bank of Texas, N.A., Fossil
Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc. and
Fossil Trust (without exhibits) (incorporated by reference to
Exhibit 10.2 of the Company's Report on Form 10-Q for the
quarterly period ended September 30, 1994).

10.8 First Amendment to Amended and Restated Loan Agreement
dated September 30, 1994, by and between First Interstate
Bank of Texas, N.A., Fossil Partners, L.P., Fossil, Inc.,
Fossil Intermediate, Inc., Fossil Trust and Fossil New York,
Inc. (without exhibits) (incorporated by reference to Exhibit
10.3 of the Company's Report on Form 10-Q for the quarterly
period ended September 30, 1994).

10.9 Second Amendment to Amended and Restated Loan Agreement dated
February 13, 1995, by and between First Interstate Bank of
Texas, N.A., Fossil Partners, L.P., Fossil, Inc., Fossil
Intermediate, Inc., Fossil Trust, Fossil New York, Inc. and
Fossil Stores I, Inc.(without exhibits) (incorporated by
reference to Exhibit 10.21 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).

10.10 Commercial/Real Estate Note dated as of August 31, 1994, in
the principal amount of $5,000,000 executed by Fossil
Partners, L.P. and payable to the order of First Interstate
Bank of Texas, N.A. (incorporated by reference to Exhibit 10.6
of the Company's Report on Form 10-Q for the quarterly period
ended September 30, 1994).

10.11 Subordination Agreement of Fossil Trust for the benefit of
First Interstate Bank of Texas, N.A. dated as of August 31,
1994 (incorporated by reference to Exhibit 10.7 of the
Company's Report on Form 10-Q for the quarterly period ended
September 30, 1994).

10.12 Indemnity Agreement dated as of August 31, 1994 from Fossil
Partners, L.P. and Fossil, Inc. to First Interstate Bank
of Texas, N.A.(incorporated by reference to Exhibit 10.8
of the Company's Report on Form 10-Q for the quarterly period
ended September 30, 1994).

10.13 Master Licensing Agreement dated as of August 30, 1994, by
and between Fossil, Inc. and Fossil Partners, L.P.
(incorporated by reference to Exhibit 10.12 of the Company's
Report on Form 10-Q for the quarterly period ended
September 30, 1994).

10.14 Agreement of Limited Partnership of Fossil Partners, L.P.
(incorporated by reference to Exhibit 10.13 of the Company's
Report on Form 10-Q for the quarterly period ended
September 30, 1994).

10.15 Overhead Allocation Agreement by and between Fossil Partners,
L.P. and Fossil New York, Inc. dated October 1, 1994
(incorporated by reference to Exhibit 10.33 of the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994).

10.16 Services and Operations Agreement by and between Fossil
Partners, L.P. and Fossil New York,Inc. dated October 1, 1994
(incorporated by reference to Exhibit 10.34 of the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994).

10.17 Overhead Allocation Agreement by and between Fossil Partners,
L.P. and Fossil Stores I, Inc. dated December 1, 1994
(incorporated by reference to Exhibit 10.35 of the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994).

10.18 Second Amended and Restated Loan Agreement entered into on
May 2, 1995 by and between First Interstate Bank of Texas,
N.A., Fossil Partners,L.P., Fossil, Inc., Fossil Intermediate,
Inc., Fossil Trust, Fossil New York, Inc. and Fossil Stores I,
Inc. (without exhibits) (incorporated by reference to Exhibit
10.1 of the Company's Report on Form 10-Q for the quarterly
period ended June 30, 1995).

10.19 Third Amended and Restated Master Revolving Credit Note dated
April 30, 1995, in the stated principal amount of $25,000,000
executed by Fossil Partners, L.P. and payable to the order of
First Interstate Bank of Texas, N.A. (incorporated by
reference to Exhibit 10.2 of the Company's Report on Form 10-Q
for the quarterly period ended June 30, 1995).

10.20 Stock Pledge Agreement entered into on May 2, 1995 by and
between Fossil, Inc. and First Interstate Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.3 of the Company's
Report on Form 10-Q for the quarterly period ended
June 30, 1995).

10.21 Joint Development Agreement entered into on December 25, 1995
by and between Fossil, Inc., Seiko Instruments, Inc, and
Time Tech, Inc. (incorporated by reference to Exhibit 10.43 of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).

10.22 First Amendment to Second Amended and Restated Loan Agreement
by and between First Interstate Bank of Texas, N.A. and Fossil
Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc.,
Fossil Trust, Fossil New York, Inc. and Fossil Stores I, Inc.
dated as of March 27, 1996 (incorporated by reference
to Exhibit 10.2 of the Company's Report on Form 10-Q
for the quarterly period ended March 31, 1996).

10.23 Second Amendment to Second Amended and Restated Loan Agreement
by and between First Interstate Bank of Texas, N.A. and Fossil
Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc.,
Fossil Trust, Fossil New York, Inc., Fossil Stores I, Inc.
and Fossil Stores II, Inc. dated as of May 3, 1996
(incorporated by reference to Exhibit 10.1 of the Company's
Report on Form 10-Q for the quarterly period ended
June 30, 1996).

10.24 Stock Purchase Agreement by and between Franz Scheurl and
Fossil, Inc. dated October 1, 1996.

10.25 (2) Letter Agreement dated October 4, 1995 between Fossil, Inc.
and Mark D. Quick.

10.26 (1) Third Amendment to Second Amended and Restated Loan Agreement
dated September 11, 1996, by and among Wells Fargo Bank
(Texas), National Association, a national banking association
formerly known as First Interstate Bank of Texas, N.A.,
Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate,
Inc., Fossil Trust, Fossil New York, Inc., Fossil Stores I,
Inc., and Fossil Stores II, Inc. (without exhibits).

10.27 Stock Purchase Agreement dated February 1, 1997, by and
between Bluewhale Holding S.a., and Fossil Europe B.V.
(incorporated by reference to Exhibit 10.1 of the Company's
Report on Form 10-Q for the transition period from
January 1, 1997 to April 5, 1997).

10.28 Fourth Amendment to Second Amended and Restated Loan Agreement
dated April 2, 1997, by and among Wells Fargo Bank (Texas),
National Association, a national banking association formerly
known as First Interstate Bank of Texas, N.A., Fossil
Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc.,
Fossil Trust, Fossil New York, Inc., Fossil Stores I, Inc.,
and Fossil Stores II, Inc. (without exhibits)(incorporated by
reference to Exhibit 10.2 of the Company's Report on Form 10-Q
for the transition period from January 1, 1997 to
April 5, 1997).

10.29 Fifth Amendment to Second Amended and Restated Loan Agreement
dated June 1997, by and among Wells Fargo Bank (Texas),
National Association, a national banking association formerly
known as First Interstate Bank of Texas, N.A., Fossil
Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc.,
Fossil Trust, Fossil New York, Inc., Fossil Stores I, Inc.,
and Fossil Stores II, Inc. (without exhibits) (incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q
for the quarterly period ended July 5, 1997).

13(1) Fossil, Inc. 1997 Annual Report to Stockholders.

21.1(1) Subsidiaries of Fossil, Inc.

23.1(1) Consent of Independent Auditors.

27(1) Financial Data Schedule.

(1) Filed herewith.

(2) Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

The Company did not file any report on Form 8-K during the last quarter
of the period covered by this Report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Richardson, State of Texas, on April 1 , 1998.

FOSSIL, INC.

/s/ Tom Kartsotis
----------------------------------------------
Tom Kartsotis, Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Capacity Date

/s/ Tom Kartsotis
- --------------------------- Chairman of the Board, April 1 , 1998
Tom Kartsotis Chief Executive Officer
and Director
(Principal Executive Officer)

/s/ Kosta N. Kartsotis President and Chief Operating April 1 , 1998
- --------------------------- Officer and Director
Kosta N. Kartsotis

/s/ Randy S. Kercho Executive Vice President, April 1 , 1998
- --------------------------- Chief Financial Officer and
Randy S. Kercho Treasurer
(Principal Financial and
Accounting Officer)

/s/ Michael W. Barnes Executive Vice President April 1 , 1998
- --------------------------- and Director
Michael W. Barnes

/s/ Jal S. Shroff Director April 1 , 1998
- ---------------------------
Jal S. Shroff

/s/ Kenneth W. Anderson Director April 1 , 1998
- ---------------------------
Kenneth W. Anderson

/s/ Alan J. Gold Director April 1 , 1998
- ---------------------------
Alan J. Gold

/s/ Donald J. Stone Director April 1 , 1998
- ---------------------------
Donald J. Stone

INDEPENDENT AUDITORS REPORT

To the Board of Directors of Fossil, Inc.:

We have audited the consolidated financial statements of Fossil, Inc. and
subsidiaries as of January 3, 1998 and December 31, 1996 and for each of the
three years in the period ended January 3, 1998 and have issued our report
thereon dated February 19, 1998 (except for the first paragraph of Note 10 which
is as of March 4, 1998), which report expressed an unqualified opinion; such
consolidated financial statements and report are included in your 1997 Annual
Report to Stockholders and are incorporated herein by reference. Our audit also
included the consolidated financial statement schedule of Fossil, Inc. and
subsidiaries listed in Item 14. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP
Dallas, Texas
February 19, 1998

S-1

SCHEDULE II

FOSSIL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

Fiscal Years 1995, 1996, and 1997

Additions
Charged
Balance at (Credited) to Deductions Actual
Beginning of Costs and Returns or Balance at End of
Classification Period Expenses Writeoffs Period
- -------------- ------------ -------------- ------------------ -----------------

Fiscal Year 1995:

Accounts receivable allowances:

Sales returns 8,137,195 14,536,232 (13,639,303) 9,034,124

Bad debts 2,050,886 1,389,980 (584,800) 2,856,066

Cash discounts 85,232 115,507 (94,621) 106,118

Inventory in transit for
estimated customer (4,277,578) (8,074,296) 7,524,874 (4,827,000)
returns

Fiscal Year 1996:

Accounts receivable allowances:

Sales returns 9,034,124 12,524,626 (12,704,297) 8,854,453

Bad debts 2,856,066 2,103,499 (667,419) 4,292,146

Cash discounts 106,118 218,500 (110,747) 213,871

Inventory in transit for
estimated customer (4,827,000) (6,330,967) 6,694,021 (4,463,946)
returns

Fiscal Year 1997:

Accounts receivable allowances:

Sales returns 8,854,453 17,399,057 (15,677,328) 10,576,181

Bad debts 4,292,146 2,024,647 (1,616,962) 4,699,831

Cash discounts 213,871 204,448 (229,722) 188,597

Inventory in transit for
estimated customer (4,463,946) (9,715,573) 8,484,687 (5,694,831)
returns

S-2

EXHIBIT INDEX

Exhibit
Number Description

3.1 Amended and Restated Certificate of Incorporation of Fossil,
Inc. (incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, registration
no. 33-45357, filed with the Securities and Exchange
Commission).

3.2 Amended and Restated Bylaws of Fossil, Inc.(incorporated by
reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-1, registration no. 33-45357,
filed with the Securities and Exchange Commission).

10.4 (2) Description of Bonus Program (incorporated herein by reference
to Exhibit 10.4 of the Company's Registration Statement of
Form S-1, registration no. 33-45357, filed with the
Securities and Exchange Commission).

10.8 First Amendment to Amended and Restated Loan Agreement
dated September 30, 1994, by and between First Interstate Bank
of Texas, N.A., Fossil Partners, L.P., Fossil, Inc.,

Fossil Intermediate, Inc., Fossil Trust and Fossil New York,
Inc. (without exhibits) (incorporated by reference to Exhibit
10.3 of the Company's Report on Form 10-Q for the quarterly
period ended September 30, 1994).

10.12 Indemnity Agreement dated as of August 31, 1994 from Fossil
Partners, L.P. and Fossil, Inc. to First Interstate Bank
of Texas, N.A. (incorporated by reference to Exhibit
10.8 of the Company's Report on Form 10-Q for the quarterly
period ended September 30, 1994).

10.14 Agreement of Limited Partnership of Fossil Partners, L.P.
(incorporated by reference to Exhibit 10.13 of the Company's
Report on Form 10-Q for the quarterly period ended
September 30, 1994).

10.18 Second Amended and Restated Loan Agreement entered into on
May 2,1995 by and between First Interstate Bank of Texas,N.A.,
Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate,
Inc., Fossil Trust, Fossil New York, Inc. and Fossil Stores I,
Inc. (without exhibits) (incorporated by reference to Exhibit
10.1 of the Company's Report on Form 10-Q for the quarterly
period ended June 30, 1995).

10.22 First Amendment to Second Amended and Restated Loan Agreement
by and between First Interstate Bank of Texas, N.A. and
Fossil Partners, L.P., Fossil,Inc., Fossil Intermediate, Inc.,
Fossil Trust, Fossil New York, Inc. and Fossil Stores I, Inc.
dated as of March 27, 1996 (incorporated by reference
to Exhibit 10.2 of the Company's Report on Form 10-Q
for the quarterly period ended March 31, 1996).

10.23 Second Amendment to Second Amended and Restated Loan Agreement
by and between First Interstate Bank of Texas, N.A. and Fossil
Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc.,
Fossil Trust, Fossil New York, Inc., Fossil Stores I, Inc. and
Fossil Stores II, Inc. dated as of May 3, 1996 (incorporated
by reference to Exhibit 10.1 of the Company's Report on
Form 10-Q for the quarterly period ended June 30, 1996).

10.24 Stock Purchase Agreement by and between Franz Scheurl and
Fossil, Inc. dated October 1, 1996.

10.25 (2) Letter Agreement dated October 4, 1995 between Fossil, Inc.
and Mark D. Quick.

10.26 (1) Third Amendment to Second Amended and Restated Loan Agreement
dated September 11, 1996, by and among Wells Fargo Bank
(Texas), National Association, a national banking
association formerly known as First Interstate Bank of Texas,
N.A., Fossil Partners, L.P., Fossil,Inc., Fossil Intermediate,
Inc., Fossil Trust, Fossil New York, Inc., Fossil Stores I,
Inc., and Fossil Stores II, Inc. (without exhibits).

10.28 Fourth Amendment to Second Amended and Restated Loan Agreement
dated April 2, 1997, by and among Wells Fargo Bank (Texas),
National Association, a national banking association formerly
known as First Interstate Bank of Texas, N.A., Fossil
Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc.,
Fossil Trust, Fossil New York, Inc., Fossil Stores I, Inc.,
and Fossil Stores II, Inc. (without exhibits) (incorporated by
reference to Exhibit 10.2 of the Company's Report on Form 10-Q
for the transition period from January 1, 1997 to April 5,
1997).

13(1) Fossil, Inc. 1997 Annual Report to Stockholders.

21.1(1) Subsidiaries of Fossil, Inc.

23.1(1) Consent of Independent Auditors.

27(1) Financial Data Schedule.