<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS

                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

|X|  ANNUAL  REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, OR

[ ] 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 0-20612

                                 JUST TOYS, INC.
             (Exact Name of Registrant as Specified in its Charter)


              DELAWARE                                      13-3677074
  (State or other jurisdiction                            (I.R.S. Employer
 of incorporation or organization)                     Identification Number)


                  50 WEST 23RD STREET, NEW YORK, NEW YORK 10010
               (Address of principal executives office) (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 645-6335

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


                                                       NAME OF EACH EXCHANGE
      TITLE OF EACH CLASS                               ON WHICH REGISTERED
      -------------------                               -------------------
           None                                            NOT APPLICABLE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (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 or information  statements
incorporated  by  reference in Part III of this Form 10-K or any  amendments  to
this Form 10-K. [X]

The  aggregate  market  value at March 13,  1997 of  shares of the  Registrant's
Common  Stock,  par value $.01 per share (based upon the closing price per share
of  such  stock  on the  Nasdaq  Stock  Market)  held by  non-affiliates  of the
Registrant  was  approximately  $4,542,000.  Solely  for  the  purposes  of this
calculation,  shares held by directors and officers of the Registrant  have been
excluded. Such exclusion should not be deemed a determination or an admission by
the Registrant that such individuals are, in fact, affiliates of the Registrant.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest  practicable  date: At March 13, 1997, there were
outstanding  4,150,000 shares of the  Registrant's  Common Stock, par value $.01
per share.

================================================================================



<PAGE>



                                 JUST TOYS, INC.

                               INDEX TO FORM 10-K

<TABLE>
<CAPTION>

ITEM NUMBER                                                                                                                  PAGE
-----------                                                                                                                  ----
<S>           <C>                                                                                                           <C>
PART I........................................................................................................................  1

     ITEM 1 -    BUSINESS.....................................................................................................  1
     ITEM 2 -    PROPERTIES...................................................................................................  8
     ITEM 3 -    LEGAL PROCEEDINGS............................................................................................  9
     ITEM 4 -    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................... 10

PART II....................................................................................................................... 11

     ITEM 5 -    MARKET FOR THE COMPANY'S COMMON EQUITY AND
                    RELATED STOCKHOLDER MATTERS............................................................................... 11
     ITEM 6 -    SELECTED FINANCIAL DATA...................................................................................... 12
     ITEM 7 -    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................. 14
     ITEM 8 -    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................. 21
     ITEM 9 -    CHANGES IN AND DISAGREEMENTS WITH
                    ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................................ 22

PART III...................................................................................................................... 23

     ITEM 10 -   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................................... 23
     ITEM 11 -   EXECUTIVE COMPENSATION....................................................................................... 26
     ITEM 12 -   SECURITY OWNERSHIP OF
                    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................................. 29
     ITEM 13 -   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................... 32

PART IV....................................................................................................................... 33

     ITEM 14 -   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                    REPORTS ON FORM 8-K....................................................................................... 33

</TABLE>



<PAGE>



                                     PART I

ITEM 1 - BUSINESS

         Just  Toys,  Inc.  (the  "Company")  designs,  develops,  manufactures,
markets and  distributes  a variety of toy and sport  products  for  children of
various ages. The Company is a Delaware  corporation  formed in August 1992. Its
business  was begun in 1989 and was  conducted  as a joint  venture  (the "Joint
Venture") until September 1992 when the Company succeeded to the business of the
Joint Venture.

         In order to enhance the Company's business,  the Company has undertaken
to selectively acquire new product lines believed to have long term strength and
continuity.  On June 28, 1996,  the Company  purchased  certain  assets of Table
Toys, Inc. ("Table Toys"). The Table Toys products include a line of play tables
which are compatible with most brands of toy  construction  blocks and a line of
toy construction blocks.

         On February 1, 1996,  the Company  acquired the toy line and the rights
to use the "Welsh" name for toys from Welsh Company,  Inc. ("Welsh").  The Welsh
toy line consists of doll carriages and strollers.

         The Company  presented its entire product line to retailers at the Hong
Kong, Dallas and New York Toy Fairs in January and February 1997.

         As part of the Company's cost reduction program,  on March 22, 1996 the
Company  executed an agreement to sell its Hong Kong  property,  which closed on
April 30, 1996. The Company presently leases smaller premises.

         The  Company  has two  wholly  owned  foreign  subsidiaries,  Just Toys
Products,  Limited  and  Joyful  World  Enterprises  Limited,  both of which are
incorporated in Hong Kong.

PRODUCTS

         The Company has categorized  its products into two  categories:  "Toys"
and "Sport." The following  chart shows the breakdown of the Company's net sales
by product category for the years indicated:


<TABLE>
<CAPTION>

                                                 YEAR ENDED DECEMBER 31,

            -------------------------------------------------------------------------------------------------
                         1996                              1995                             1994
            -------------------------------   ------------------------------   ------------------------------
 PRODUCT          AMOUNT         PERCENTAGE        AMOUNT         PERCENTAGE         AMOUNT        PERCENTAGE
---------   ------------------   ----------   -----------------   ----------   ------------------  ----------
<S>           <C>                   <C>        <C>                   <C>         <C>                  <C>
Sport         $  10,577,000         48.0%      $   8,066,000         41.2%       $   5,324,000        22.3%
Toys          $  11,479,000         52.0%      $  11,522,000         58.8%       $  18,551,000        77.7%
                 ----------         -----         ----------         -----          ----------        -----
              $  22,056,000        100.0%      $  19,588,000        100.0%       $  23,875,000       100.0%
</TABLE>


         SPORT

         The Company's line of Sport toys include spiral footballs  manufactured
under a non-exclusive patent license, foam and plastic baseballs, baseball bats,
soccer balls and  basketballs,  mini  basketball  hoop sets,  youth-size  hockey
sticks, pucks and goals and batting tee sets. The products are sold under the


                                        1




<PAGE>


Company's names as well as licensed names such as  Spalding'r',  National Hockey
League'r' and Louisville  Slugger'r'.  The Company's  products in its Sport line
generally sell at retail for between $2.00 and $50.00.

         TOYS

         The Company's  Toys line  consists of many  different  items  including
bendable  figures  and  miniature  figures,  some of which are based on licensed
characters, play tables, strollers, its Laser Light'r' toys, hand-held toys that
project  laser-like  images,  and a line of foam  shooting  toys.  The Company's
products  in its Toys  line  generally  sell at  retail  for  between  $2.00 and
$100.00.

LICENSING

         Some  of  the  Company's   products  are  manufactured   under  license
agreements.  The successful  marketing of products  based on character  licenses
generally  requires the Company to  anticipate  and evaluate the  popularity  of
properties, many of which are media-related, and to capitalize on the success of
such properties in a timely manner.  A  determination  to acquire a license must
frequently be made before the commercial  introduction of the product in which a
licensed property appears and license  arrangements often require the payment of
non-refundable  advances or guaranteed minimum  royalties.  Substantially all of
the  Company's  licenses  extend  for one to  three  years.  Some  licenses  are
renewable  at  the  option  of the  Company  upon  payment  of  certain  minimum
guaranteed payments or the attainment of certain sales levels during the initial
term of the license.  Royalties to licensors  typically  range from 8% to 16% of
sales of the related  product.  Licenses  for some foreign  territories  require
royalties  that exceed  such range.  As of December  31,  1996,  minimum  future
guaranteed   payments   through  2001  under   license   agreements   aggregated
approximately $618,000.

         The Company's spiral  footballs are manufactured  under a non-exclusive
patent license that extends for the life of the patent.

DESIGN AND DEVELOPMENT

         The Company relies on its ability to purchase  selective  product lines
and on its management personnel and independent inventors, designers, sculptors,
model-makers  and  engineers  for new  products.  The Company pays  royalties to
independent inventors and designers based on sales of products developed by them
generally ranging from 2% to 7%.

MANUFACTURING

         The Company relies on contract  manufacturers  in the United States and
the Far East and on its wholly owned subsidiary,  Celt Specialty Partners,  Inc.
("Celt"),  to  manufacture  its  products.  Celt  manufactures  certain  of  the
Company's foam sport balls as well as other products. Approximately 30.7%, 29.2%
and 12.4% of net sales in 1996, 1995 and 1994,  respectively,  were derived from
the sale of products manufactured at this facility.

         Decisions related to the choice of third party manufacturers are  based
on price, quality of merchandise, reliability and the ability of a  manufacturer
to meet  the  Company's  timing requirements for delivery.  The Company is not a
party to long-term contractual or other arrangements with any  manufacturer. The
Company often uses more than one manufacturer to produce a single  product.  The


                                        2




<PAGE>

Company  utilizes public  warehouse  facilities on both the east and west coasts
and in the  mid-west,  at which  it  regularly  maintains  an  inventory  of its
products,  thus enabling the Company to respond quickly to customer orders.  The
Company  also  utilizes  warehouse  facilities  located  near its  manufacturing
facility in upstate New York.  Tooling  and  injection  molding are owned by the
Company and may be utilized by  different  manufacturers  if the need arises for
alternate sources of production.

         The  principal  raw materials  used in the  production  and sale of the
Company's  products are chemicals  for foam,  plastics and paper  products.  Raw
materials are generally  purchased by the  manufacturers  who deliver  completed
products to the Company.  The Company  believes  that an adequate  supply of raw
materials  used in the  manufacture  of its products is readily  available  from
existing and alternative sources at competitive prices.

         The  Company's  PVC products and some of the  Company's  extruded  foam
products  are  manufactured  by  unaffiliated  parties  located in the  People's
Republic of China and Taiwan. The Far East is the largest  manufacturing  center
of  toys  in  the  world  and  most  toy  companies   utilize  the  services  of
manufacturers   located  in  the  Far  East.   The  majority  of  the  Company's
manufacturing  in the Far East is performed by five to seven  manufacturers.  In
any particular year, an individual manufacturer may account for more than 10% of
the Company's products, depending upon the popularity of the product made by it.
While the Company is not dependent on any single manufacturer in the Far East to
supply it with products,  the Company could be affected by political or economic
disruptions affecting businesses in the Far East generally. The Company believes
that alternate  sources of manufacturing  are available outside of the Far East.
The Company  has two wholly  owned  subsidiaries  based in Hong Kong to maintain
contact with  manufacturers  and  subcontractors  in the Far East and  supervise
manufacturing and quality control.

SALES AND MARKETING

         The Company  distributes its products in the United States primarily to
toy stores,  mass merchandisers  and, to a lesser extent,  discount drug chains,
supermarket chains, sporting goods stores, catalogers and gift stores located in
the United States.  The Company  participates in the electronic data interchange
program  maintained by many of its largest  customers.  This program  allows the
Company to monitor store inventory and schedule  production to meet  anticipated
reorders.

         The Company's net sales to foreign  markets in 1996, 1995 and 1994 were
approximately  5.7%, 4.9% and 9.9%,  respectively,  of total net sales. Sales in
foreign countries are generally made directly to independent distributors,  some
of which are licensees that have acquired foreign distribution rights in respect
of  categories  of  products  which  the  Company  has the  right to  distribute
domestically.   Foreign   distributors   ordinarily   retain   their  own  sales
representatives.  Sales of products to distributors in foreign  countries are in
United States dollars which reduces the Company's  exposure to  fluctuations  in
monetary rates overseas.

         The Company's net sales and gross margin, as a percentage of net sales,
is  dependent  on its mix of  business  during a given  time  period.  Variables
include such issues as whether  merchandise is shipped from a domestic warehouse
or directly from the Orient,  whether the merchandise is purchased from overseas
sources or is produced  domestically  and the specific blend of products shipped
to the Company's customers.


                                        3




<PAGE>



         The  Company  does not sell any of its  products  on  consignment.  The
Company generally accepts returns only for defective  merchandise.  A portion of
firm  orders,  by their  terms,  may be  cancelled  if shipment is not made by a
certain date.

         In 1996, the Company  maintained an internal sales and marketing  staff
of 9 people, including its senior management.  The Company retains approximately
sixteen sales  representation  firms in the United States who act as independent
contractors  and who market the Company's  products at the major toy trade shows
held in New York City and Hong Kong and at regional  trade  shows.  In addition,
sales  representatives  make  on-site  visits to  customers  for the  purpose of
soliciting orders for products.

CUSTOMERS

         The five largest  customers of the Company  accounted for approximately
71.7%,  67.8% and 60.7% of net sales in 1996,  1995 and 1994,  respectively.  In
each of the past three  years,  the  Company has had two  customers,  Target and
Wal-Mart, each representing more than 10% of net sales. Sales to these customers
totaled 57%, 53% and 44% of net sales in 1996, 1995 and 1994, respectively.  The
termination by either of these  customers of its  relationship  with the Company
would have a material adverse effect on the Company.

BACKLOG

         Total  order  backlog at December  31, 1996 and 1995 was  approximately
$1,780,000 and $1,576,000,  respectively.  The Company expects substantially all
of such orders to be filled during 1997. Cancellations may materially reduce the
amount   of  sales   realized   from   the   Company's   backlog.   The  use  of
just-in-time/quick  response  inventory  techniques and  replenishment  programs
being used by larger  retailers has caused a change in their  ordering  patterns
with fewer orders being placed significantly in advance of shipment. The Company
does not consider  total order  backlog to be a  meaningful  indicator of future
sales.

COMPETITION

         The toy industry is highly  competitive  and the Company  competes with
many  larger,   better  capitalized  companies  which  have  significantly  more
resources than the Company to devote to the design and  development of new toys,
the  procurement  of  licenses  and the  marketing  and  distribution  of  their
products. Due to the Company's relatively modest advertising budget, the Company
has greater  difficulties  in  obtaining  retailer  product  acceptance  than do
companies with large advertising budgets.

SEASONALITY

         The toy  industry  is  typically  seasonal  in nature  due to the heavy
demand for toy products during the Christmas season, with the majority of orders
being placed  during the first  two-thirds  of the year for shipment  during the
third and fourth quarters,  and with the majority of collections from such sales
being received in the fourth quarter.


                                        4




<PAGE>



GOVERNMENT REGULATION

         The Company is subject to the  provisions  of,  among  other laws,  the
Federal  Hazardous  Substances Act and the Federal  Consumer Product Safety Act.
These laws  empower the  Consumer  Products  Safety  Commission  (the "CPSC") to
protect  children  from  hazardous  toys and  other  articles.  The CPSC has the
authority  to exclude from the market  articles  which are found to be hazardous
and  can  require  a  manufacturer   to  repurchase   such  toys  under  certain
circumstances.  Any such  determination  by the CPSC is subject to court review.
Similar  laws exist in some  states and cities in the United  States and in many
jurisdictions  throughout  the world.  The Company  maintains a quality  control
program  (including  the  inspection  of goods at factories and the retention of
independent  testing  laboratories  in Hong  Kong)  to  ensure  compliance  with
applicable laws. The Company maintains product liability insurance in the amount
of $11,000,000.

EMPLOYEES

         As of December 31, 1996, the Company and its subsidiaries  employed 102
persons, 45 of which were engaged in manufacturing.


                                        5




<PAGE>




                        EXECUTIVE OFFICERS OF THE COMPANY

         The  following   table  sets  forth  the  names,   ages  and  principal
occupations  of each of the Company's  executive  officers and the year in which
each was elected an officer.


<TABLE>
<CAPTION>

           NAME                        AGE                              TITLE                                    OFFICER SINCE
-----------------------------         -----           ------------------------------------            -----------------------------
<S>                                <C>              <C>                                             <C>
Morton J. Levy                         75                  Chairman of the Board of                                  1995
                                                           Directors and Chief
                                                           Executive Officer

Barry Shapiro                          54                  President, Chief                                          1995
                                                           Operating Officer and
                                                           Director of the Company

David Schwartz                         37                  Chief Financial Officer                                   1996
                                                           and Treasurer

Seymour Rosenthal                      66                  Secretary                                                 1996

Robert Pagano                          42                  Vice President--                                          1996
                                                           Marketing and Product
                                                           Planning

Scott Buske                            47                  Vice President--Domestic                                  1996
                                                           Manufacturing
                                                           Operations

Larry Scott                            47                  Vice President of Sales                                   1997

</TABLE>



         MORTON J. LEVY was appointed  Chairman and Chief  Executive  Officer of
the  Company in March 1995.  Mr.  Levy is a director  and officer of each of the
Company's  subsidiaries.  He was  appointed a director of the Company in October
1992 and became a consultant to the Company in 1994. Mr. Levy was engaged in the
toy business for  approximately  37 years,  having been a founder and  principal
officer of Gabriel  Industries,  Inc., a diversified toy manufacturer.  For more
than five years prior to his engagement as a consultant to the Company, Mr. Levy
was a private investor.

         BARRY SHAPIRO was appointed  President and Chief  Operating  Officer of
the Company in March 1995.  Mr.  Shapiro is Chairman of the Company's  Hong Kong
subsidiaries  and a director and officer of each of the Company's  subsidiaries.
He was appointed a director of the Company in April 1995.  Mr.  Shapiro has been
engaged in the toy business for almost 30 years.  In November  1994, Mr. Shapiro
was appointed Executive Vice President of the Company.  From December 1993 until
November  1994,  he served as  Managing  Director  for the  Company's  Hong Kong
subsidiaries,  Joyful World Enterprises,  Ltd. and Just Toys Products, Ltd. From
October 1991 to November 1993, he was the President of Packaging Specialists,  a
manufacturer and distributor of protective packaging. From


                                        6




<PAGE>

January 1984 to June 1991,  Mr. Shapiro was Executive Vice President and General
Manager of Imagineering, Inc.

         DAVID SCHWARTZ was appointed Chief  Financial  Officer and Treasurer of
the  Company  in  November  1996.  Mr.  Schwartz  is an  officer  of each of the
Company's United States  subsidiaries.  From January 1996 through November 1996,
Mr. Schwartz was  self-employed  as a consultant to a number of companies in the
consumer  products  business.  From May 1994 through  December  1995, he was the
Chief Financial  Officer of Philips  Industries,  Inc., a distributor of women's
hair and cosmetic accessories. From December 1990 through May 1994, Mr. Schwartz
was the  Controller  of  Ameriscribe  Management  Services,  Inc., a provider of
facilities management services.

         SEYMOUR  ROSENTHAL was  appointed  Secretary of the Company in November
1996. Mr. Rosenthal has been the Director of Internal Operations for the Company
since September  1995. From 1993 through 1995, he was a consultant  working with
various financial institutions in the workout of bankrupt organizations.  During
1992,  Mr.  Rosenthal  was the  Manager of  Operations  of  Sunweave  Linens,  a
manufacturer and distributor of linens.

         ROBERT  PAGANO  returned  to the  Company  in  December  1995  and  was
appointed  Vice  President--Marketing  and  Product  Planning  of the Company in
February  1996.  From May 1994 through  December  1995,  Mr. Pagano was the Vice
President  for Research and  Development  at Toy Biz,  Inc.  Prior to that time,
starting   in   November   1991   through   May  1994,   Mr.   Pagano  was  Vice
President--Marketing of the Joint Venture and then of the Company.

         SCOTT BUSKE was  appointed  Vice  President  of Domestic  Manufacturing
Operations in February 1996. Mr. Buske,  for more than the past five years,  was
Chairman of the Board, President and Chief Executive Officer of Table Toys, Inc.
In February 1996,  immediately  following Mr. Buske's employment by the Company,
Table Toys,  Inc.  filed a petition  under Chapter 11 of the federal  bankruptcy
laws.

         LARRY SCOTT was  appointed  Vice  President  of Sales of the Company in
February   1997.   From   1994   through   1996,   Mr.   Scott   was  the   Vice
President--Seasonal Product and Regional Sales Manager of Trendmasters,  Inc., a
manufacturer and distributor of toys.  Prior to that time,  starting in 1990, he
was the Vice President of International Sales of Collegeville Imagineering, Inc.


                                        7




<PAGE>



ITEM 2 - PROPERTIES

         The Company's  principal  executive offices and showroom are located in
New York City.  The Company  leases  approximately  10,588 square feet of office
space under a lease expiring in December 1997. Under certain circumstances,  the
Company  has the right to renew its lease for an  additional  2 1/2  years.  The
space is adequate for the Company's current needs.

         The Company  leases a showroom in the Toy Center  Building at 200 Fifth
Avenue, New York, New York,  consisting of approximately 3,200 square feet under
a lease expiring in April 2008. The showroom is adequate for the Company's needs
and has sufficient  capacity to accommodate growth in the Company's product line
as well as the large size of some of the Company's new products.

         The  Company  owned and  occupied  approximately  5,899  square feet of
office space in Hong Kong.  On March 22, 1996,  the Company  signed an Agreement
for Sale and Purchase  which provided for the sale of the Hong Kong property for
approximately $3,088,000, which closed on April 30, 1996. On April 15, 1996, the
Company  leased  approximately  3,400  square  feet of  office  space for a term
expiring in April 1999.  The leased space,  which  replaces the Company's  owned
space, is adequate for the Company's needs.

         The Company's Celt subsidiary owns an approximately  31,000 square foot
manufacturing  facility on 8 acres of land in Brockport,  New York. The facility
is made of metal panel and brick and is unencumbered.  The Company  manufactures
its foam balls and related products in that facility.  The Company has increased
the production  capacity of the Celt facility through increases in manufacturing
efficiencies.  The  Company  believes  that the  facility  is  suitable  for the
Company's current manufacturing  activities.  The Company leases warehouse space
in upstate New York and also utilizes public warehouse facilities in New Jersey,
California and Washington.

         The Company's  operations  relating to play tables is based in Arkansas
City,  Kansas.  The Company  leases 24,500 square feet of office,  warehouse and
assembly space  relating to this operation  under a lease expiring in July 1998.
Additionally, public warehouse facilities are utilized in Kansas and Iowa.


                                        8




<PAGE>

ITEM 3 - LEGAL PROCEEDINGS

         In July  1996,  the  United  States  District  Court  for the  Northern
District of California  granted summary judgment in favor of the Company and the
other defendants in a lawsuit  commenced in April 1995 by OddzOn Products,  Inc.
OddzOn  Products,  Inc. alleged that the Company's Micro Ultra Pass'r' and Ultra
Pass'r'  infringed  a  design  patent  allegedly  owned  by  the  plaintiff  and
constituted  trade  dress  infringement  and  unfair  competition.  The  Court's
decision held that the Company's products do not infringe the plaintiff's rights
in any way. OddzOn Products,  Inc. has appealed that decision.  The Company does
not believe that its  products  infringe  any rights of the  plaintiff,  and the
Company is contesting the action.

         The Company  received  approximately  1,000  complaints  concerning its
Micro-Bake for Kids'tm' (the "Micro-Bake")  product, all of which have been paid
or accrued  for as of December  31,  1996 and  December  31,  1995.  The Company
discontinued  selling  this  product in 1995.  Virtually  all of the  complaints
assert damage to the Micro-Bake product and many complaints assert damage to the
consumer's  microwave oven. The Company has product liability  insurance related
to this matter.  The Company is expected to be responsible for approximately 50%
of such claims and the insurance company is expected to pay the balance.

         In June 1996, the Company  commenced an action against CFB Venture Fund
II, L.P.  ("CFB") and Stephen Broun in the United States  District Court for the
Southern District of New York. The Company sought a declaratory  judgment to the
effect  that the  Company  did not breach  any  agreement  with CFB to  purchase
certain assets of BRIK, Inc.,  ("Brik").  In July 1996, the defendants  answered
and interposed  four  counterclaims  against the Company seeking damages against
the  Company in an amount of at least  $600,000  plus  treble  punitive  damages
claiming that the Company and CFB had reached an enforceable  agreement pursuant
to which the Company would  purchase  certain assets of Brik from CFB, a secured
creditor of Brik.  This action was settled with the exchange of mutual  releases
and was dismissed with prejudice in January 1997.


                                        9




<PAGE>



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

         Not Applicable.


                                       10




<PAGE>



                                     PART II

ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

         The Company's  common stock,  par value $.01 per share ("Common Stock";
Symbol:  JUST),  has been traded on the Nasdaq Stock Market since the  Company's
initial public offering on October 1, 1992. The high and low sale prices for the
Common Stock as reported by the Nasdaq Stock Market from January 1, 1995 through
December 31, 1996 are as follows:

<TABLE>
<CAPTION>

 CALENDAR YEAR                                    HIGH                   LOW
----------------                             ---------------      -----------------
<S>             <C>                        <C>                   <C>
     1995
                  First Quarter                     $2.969                $1.125
                  Second Quarter                     2.438                 1.000
                  Third Quarter                      2.625                 1.000
                  Fourth Quarter                     2.625                 1.125

     1996
                  First Quarter                     $2.000                $1.125
                  Second Quarter                     2.688                 1.000
                  Third Quarter                      2.000                 1.063
                  Fourth Quarter                     2.313                 1.313
</TABLE>


DIVIDENDS AND DISTRIBUTIONS

         Pursuant to the Company's  Certificate of Incorporation,  the Company's
Board  of  Directors  has  authorized  150,000  shares  of  non-voting  Series A
Convertible  Redeemable  Preferred  Stock,  par value $1.00 per share ("Series A
Stock") of which 120,000 shares are issued and outstanding and 650,000 shares of
non-voting Series B Convertible  Redeemable Preferred Stock, par value $1.00 per
share ("Series B Stock") of which 538,234 shares are issued and outstanding. The
Series A Stock and Series B Stock rank senior to the Common  Stock with  respect
to dividends. The Series A Stock and Series B stock have cumulative dividends of
$.06   per  share  and  $.25375  per  share,  respectively,  per  annum, payable
quarterly.  As  long  as any  shares of  either  the  Series A Stock or Series B
Stock  remain outstanding,  no cash  dividends  will be paid on the Common Stock
unless,  at the  time, all accrued and unpaid  dividends and applicable  sinking
fund obligations have been paid or provided for. The Company does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future.

NUMBER OF STOCKHOLDERS

         As of March 13,  1997,  there were 148  holders of record of the Common
Stock.


                                       11




<PAGE>



ITEM 6 - SELECTED FINANCIAL DATA

         The following table sets forth certain  selected  financial data at and
for the periods  presented.  This information should be read in conjunction with
the Company's Financial Statements and related Notes.

<TABLE>
<CAPTION>


                                                                              YEARS ENDED DECEMBER 31,

                                                           --------------------------------------------------------------
                                                           1996         1995         1994         1993          1992
                                                           ----         ----         ----         ----          ----
                                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                      <C>         <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
  Net sales                                              $ 22,056     $ 19,588    $ 23,875      $ 42,568     $ 32,468
  Cost of goods sold                                       13,569       13,339      22,996        28,678       18,479
                                                          -------      -------     -------       -------      -------
  Gross profit                                              8,487        6,249         879        13,890       13,989
                                                          -------      -------     -------       -------      -------
  Expenses:
  Merchandising, selling, warehousing and distribution      4,406        6,700       9,508         7,210        4,604
  Royalties                                                   710        1,868       3,081         4,713        2,832
  General and administrative                                2,931        3,747       3,779         3,268        1,945
                                                          -------      -------     -------       -------      -------
  Operating income (loss)                                     440       (6,066)    (15,489)       (1,301)       4,608
  Interest expense                                           (546)        (357)       (285)          (34)        (272)
  Interest and dividend income                                 13          141         467           363           16
  Writedown of investment in Hong Kong property                --       (1,578)        --             --           --
  Settlement of arbitration and related legal expenses         --         (910)        --             --           --
  Other income (expense)                                      248          (17)       (214)           (8)          --
  (Provision)/benefit for income taxes(1)                      --           --        (275)          462          821
                                                          -------      -------     -------       -------      -------
  Income (loss) before change in accounting principle
    and preferred stock dividends and accretion              155        (8,787)     (15,796)        (518)       3,531
  Cumulative effect of change in accounting principle         --            --           75           --           --
  Preferred stock dividends and accretion                   (109)           --           --           --           --
                                                          -------      -------     -------       -------      -------
  Net income (loss) attributable to common stockholders  $    46      $ (8,787)   $ (15,721)    $   (518)    $  3,531
                                                          =======      =======     ========      =======      =======

PRO FORMA DATA:

  Pro forma provision for income taxes                        --            --           --           --        1,048
                                                                                                              -------
  Pro forma net income (2)                                    --            --           --           --     $  2,483
                                                                                                              -------

  Pro forma net income (loss) per common share:

  Before cumulative effect of change in accounting
     principle                                           $   .01      $  (2.12)   $   (3.81)    $   (.14)    $   1.10

  Cumulative effect of change in accounting principle         --            --          .02           --           --
                                                          -------      -------     --------      -------      -------
  Net income (loss) attributable to common stockholders  $   .01       $ (2.12)   $   (3.79)    $   (.14)    $   1.10
                                                          =======      =======     ========      =======      =======

BALANCE SHEET DATA:

  Working capital                                          2,758         2,273        8,948       25,773        9,953
  Total assets                                             9,986        11,823       23,040       36,997       15,683
  Short-term debt                                             --           360          316          312          750
  Long-term debt                                              --         1,886        2,246        2,562           --
  Stockholders' equity                                     6,054         6,008       14,594       30,396       11,466
</TABLE>


(1)  Prior to October 1, 1992,  the Company  operated as a  partnership  and its
     income for tax purposes was passed  through to its  partners.  Accordingly,
     the historical  financial  statements do not include a provision for income
     taxes for periods prior to October 1, 1992.


                                       12



<PAGE>



(2)  Pro forma net income for the period through September 30, 1992 gives effect
     to the application of a provision for income taxes to historical net income
     that would have been required had the Company been taxed as a corporation.


                                       13




<PAGE>



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

         The Company  reported net income before  preferred  stock dividends and
accretion  of  approximately  $155,000  for the year ended  December  31,  1996,
compared to a loss of  approximately  $8,787,000 in the prior year.  The loss in
1995  was  largely  attributable  to  factors  relating  to the  efforts  of the
Company's new management  team to reposition the Company,  including a number of
write offs and expense items.

         In order to enhance the Company's business,  the Company has undertaken
to selectively acquire new product lines believed to have long term strength and
continuity.  On June 28, 1996,  the Company  purchased  certain  assets of Table
Toys. The Table Toys products include a line of play tables which are compatible
with  most  brands of toy  construction  blocks  and a line of toy  construction
blocks. The acquisition costs totaled approximately $1,961,000 and were financed
through a combination of cash and the issuance of warrants and Series B Stock.

         On February 1, 1996,  the Company  acquired the toy line and the rights
to use the "Welsh" name for toys from Welsh. The Welsh toy line consists of doll
carriages and strollers. The cost to acquire this product line required a modest
downpayment  and the balance of the purchase price is based upon a percentage of
sales of these products over five years.

         As part of the Company's cost reduction program,  on March 22, 1996 the
Company  executed an agreement to sell its Hong Kong  property,  which closed on
April 30, 1996. The Company presently leases smaller premises. Net proceeds from
the sale of the property were approximately  $3,088,000,  and a portion of those
proceeds  were  used to pay  the  long-term  mortgage  debt  outstanding  on the
property.

         The  following  table  sets forth the  percentage  of net sales for the
periods indicated and percentage changes from period to period of certain income
and expense items included in "Selected Financial Data".

<TABLE>
<CAPTION>


                                                         PERCENTAGE OF NET SALES      PERIOD TO PERIOD
                                                         YEAR ENDED DECEMBER 31,      PERCENTAGE CHANGES

                                                        --------------------------    -----------------
                                                                                       1996       1995
                                                                                        VS         VS
                                                         1996      1995      1994      1995       1994
                                                        -------   -------   ------    ------     ------
<S>                                                       <C>       <C>      <C>        <C>      <C>
Net Sales............................................     100.0%    100.0%   100.0%     12.6%    (18.0)%
Cost of Goods Sold...................................      61.5      68.1     96.3       1.7     (42.0)
Gross profit.........................................      38.5      31.9      3.7      35.8     610.7
Merchandising, selling, warehousing and
    distribution expenses............................      20.0      34.2     39.8     (34.2)    (29.5)
Royalties............................................       3.2       9.5     12.9     (62.0)    (39.3)
General and administrative expenses..................      13.3      19.1     15.8     (21.8)     (0.9)

</TABLE>


                                       14




<PAGE>

RESULTS OF OPERATIONS

         YEAR ENDED DECEMBER 31, 1996 AND 1995

         NET SALES

         Net sales in 1996 increased  12.6% to $22,056,000  from  $19,588,000 in
1995 primarily due to increased sales of the Company's Sport products.

         Net  sales  of  the  Company's   Sport  products   increased  31.1%  to
$10,577,000  in 1996  compared  to  $8,066,000  in  1995  due  primarily  to the
introduction of new products.

         Net sales of the Company's  Toys  products  changed less than 1% due to
the sale of  discontinued  products  in 1995,  which  was  offset in 1996 by the
addition of the Table Toys and Welsh products.

         GROSS PROFIT

         Gross profit in 1996 increased  35.8% to $8,487,000  from $6,249,000 in
1995. Gross profit as a percentage of net sales was 38.5% in 1996 as compared to
31.9% in 1995. The increase in the gross profit,  in dollars and as a percentage
of sales,  is  primarily  due to the increase in sales in 1996 over 1995 and the
writedown  in 1995 of  unamortized  tooling of $223,000  and of  slow-moving  or
obsolete inventory of $539,000.

         SELLING AND DISTRIBUTION EXPENSES

         Merchandising, selling, warehousing and distribution expenses decreased
34.2% to $4,406,000  from  $6,700,000 in 1995 due to  significant  reductions in
expenses in this area.  In  addition,  the  Company  wrote-down  barter  credits
totaling $976,000 in 1995.

         ROYALTIES

         Royalties  decreased  62% to $710,000  from  $1,869,000  in 1995.  As a
percentage of net sales,  royalties decreased to 3.2% from 9.5% in 1995. This is
primarily  due to reduced sales of licensed  products in 1996. In addition,  the
Company  expensed  prepaid and accrued  royalties  with respect to products that
were  discontinued  or where  sales were  below  expectations  in 1995  totaling
$375,000.

         GENERAL AND ADMINISTRATIVE EXPENSES

         General and  Administrative  expenses  decreased 21.8% to $2,931,000 in
1996 from  $3,747,000  in 1995 due to  continued  decreases  in expenses in this
area.

         OPERATING PROFIT (LOSS)

         The Company had  operating  income of $440,000 in 1996 compared with an
operating loss of $6,066,000 in 1995.


                                       15




<PAGE>



         OTHER INCOME (EXPENSE)

         Other income was $248,000 in 1996  compared to other expense of $17,000
in 1995. The 1996 other income  includes  approximately  $119,000 of income from
the sale of the Company's Hong Kong property  which was  recognized  because the
final selling  price was  marginally  higher than expected and selling  expenses
were less than expected.

         NET INCOME (LOSS)

         The Company had a net income of $155,000 in 1996 compared to a net loss
of $8,787,000 in 1995.

         NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

         In 1996, the Company recorded the dividends paid on its preferred stock
outstanding,  and the  accretion  of the  Series B Stock  issued  in 1996 to its
redemption  value,  as a change  in  stockholders'  equity  during  the year and
deducted  these  expenses  in  computing  net  income   attributable  to  common
stockholders. During 1995, no material amounts of dividends were earned.

         Net income  attributable to common  stockholders for 1996 totaled $0.01
per share compared to a net loss  attributable  to common  stockholders of $2.12
per share in 1995 based upon 4,150,000  weighted  average shares  outstanding in
each year.

         YEAR ENDED DECEMBER 31, 1995 AND 1994

         NET SALES

         Net sales in 1995 decreased  18.0% to $19,588,000  from  $23,875,000 in
1994  primarily  as a result  of  reduced  sales  of  certain  of the  Company's
products.  The decline in net sales was partially offset by a reduction in sales
credits in 1995 (in the form of returns,  advertising  and other  allowances and
concessions to  retailers).  Sales credits in 1995 were 4% of net sales compared
to 20.7% in 1994. The  significant  reduction in sales credits in 1995 from 1994
was a result of the voluntary  recall of the  Micro-Bake  Cake Set in 1994 which
resulted in unusually large sales credits in 1994.

         Net sales of the Company's Sport products increased 51.5% to $8,066,000
in 1995 compared to $5,324,000 in 1994 due primarily to the  introduction of new
products.

         Net sales of the Company's Toys products decreased 37.9% to $11,522,000
from  $18,551,000  in 1994 due primarily to reduced sales of licensed  items and
the  discontinuance  of unprofitable and slow-moving  products.  The decrease in
sales  for the year was  attributable  primarily  to a  decline  in sales of the
Company's  bendable  figures,  a decline in sales or  discontinuance  of certain
products  without  the  introduction  of a  replacement  product and a generally
depressed Christmas season for the toy industry as a whole.


                                       16




<PAGE>



         GROSS PROFIT

         Gross profit  increased to  $6,249,000  in 1995 compared to $879,000 in
1994.  Gross profit as a percentage  of net sales was 31.9% in 1995  compared to
3.7% in 1994.  The 1995 gross  profit as a  percentage  of sales is more in line
with the  Company's  historical  results than  reflected  in fiscal 1994.  Gross
profit in 1995 was negatively  impacted by the write-down of unamortized tooling
of  $223,000  and  slow-moving  or  obsolete  inventory  of  $539,000 as well as
inefficiencies at the Company's  manufacturing  facility. The increase from 1994
was due primarily to the adverse  affect in 1994 of the recall of the Micro-Bake
which  resulted in large sales  credits and  substantial  inventory  writedowns.
Additionally,  during 1994,  certain  products  did not meet sales  expectations
resulting  in  cancellation  of  orders,  product  returns  and sales at reduced
markups, all of which negatively affected the Company's gross profit margin.

         SELLING AND DISTRIBUTION EXPENSES

         Merchandising, selling, warehousing and distribution expenses decreased
29.5% to $6,700,000  from  $9,508,000 in 1994 due to  significant  reductions in
advertising, sales commissions and consulting expenses.

         ROYALTIES

         Royalties  decreased  39.3% to $1,869,000  from  $3,081,000 in 1994 due
primarily  to the  reduction  in net sales and  relative  reduction  in sales of
licensed products in 1995. As a percentage of net sales,  royalties decreased to
9.5% in 1995 compared to 12.9% in 1994 primarily as a result of reduced sales of
licensed  products.  Additionally,  in 1994 the  Company  expensed  prepaid  and
accrued royalties with respect to products that were discontinued or where sales
were below  expectations.  The expense for such future royalties was $375,000 in
1995 and $882,000 in 1994.

         GENERAL AND ADMINISTRATIVE EXPENSES

         General and  administrative  expenses  decreased  0.9% to $3,747,000 in
1995  from   $3,780,000  in  1994  due  primarily  to  decreases  in  bad  debt,
depreciation  and  amortization  expenses and fees for RGA  Accessories,  Inc.'s
("RGA")  services,  partially  offset  by  increases  in  consulting,  legal and
insurance  expense.  As a percentage  of net sales,  general and  administrative
expenses increased to 19.1% in 1995 compared to 15.8% in 1994 as a result of the
decline in sales from 1994 to 1995.

         OPERATING PROFIT (LOSS)

         The Company had an operating  loss of $6,066,000 in 1995 compared to an
operating loss of $15,489,000 in 1994.

         SETTLEMENT OF ARBITRATION

         During the fourth  quarter of 1995 the Company  settled an  arbitration
proceeding and an accompanying  lawsuit brought by the former Chairman and Chief
Executive  Officer,  and the former President and Chief Operating Officer of the
Company.  The settlement provided for payment by the Company of $594,000 and the
issuance of 120,000 shares of Series A Stock. The Series A Stock provides for 6%
cumulative  dividends payable in cash or additional shares of Series A Stock and
is


                                       17




<PAGE>



convertible  on or prior to December  31,  1998 into  shares of Common  Stock at
$2.00 per share  based upon the par value of such Series A Stock.  In  addition,
the Company incurred legal expenses of approximately $195,000.

         NET INCOME (LOSS)

         The Company incurred a net loss of $8,787,000 in 1995 compared to a net
loss of  $15,721,000  in 1994.  The net loss per common  share was $2.12 in 1995
based upon 4,150,000 weighted average shares  outstanding  compared to a loss of
$3.79 per common  share  based  upon  weighted  average  shares  outstanding  of
4,150,000 in 1994. The significant improvement in the Company's operations was a
result of the cost cutting measures which the new management team implemented in
1995 and the impact of the Micro-Bake recall on the 1994 results.

OTHER INFORMATION

         The business of the Company is characterized by customer order patterns
which vary from one year to the next largely because of the different  levels of
consumer  acceptance  of  a  product  line,  product   availability,   marketing
strategies   and   inventory   levels  of   retailers.   The  increased  use  of
just-in-time/quick  response inventory techniques and replenishment  programs in
use by larger  retailers have produced a change in their  ordering  methods with
fewer orders being placed  significantly  in advance of shipment.  This distorts
the comparisons of unshipped  orders at any given date. The Company expects both
of these trends to continue.  Additionally,  it is a general  industry  practice
that orders are subject to  amendment  or  cancellation  by  customers  prior to
shipment.  Therefore,  comparisons of unshipped orders in any specific period in
any given year with those same  periods in preceding  years are not  necessarily
indicative  of sales for an entire year.  The  Company's  unshipped  orders were
approximately $1,780,000 at December 31, 1996 compared to $1,576,000 at December
31, 1995.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's  primary  sources of liquidity  and capital  resources in
1996  were  funds  provided  from  operations,  proceeds  from  the  sale of the
Company's  Hong  Kong  facility  as well as  available  credit  facilities.  The
Company's  primary  sources of liquidity and capital  resources in 1995 were the
Company's  existing cash and marketable  securities and the factoring  agreement
described below with Milberg Factors, Inc. ("Milberg"). The Company did not have
significant  indebtedness  other than the  mortgage on the  Company's  Hong Kong
facility as of December 31, 1995, which was paid in April 1996 from the proceeds
of the sale of that facility.  The loss of $8,787,000  for 1995 and  $15,721,000
for 1994 significantly reduced the Company's working capital and liquidity.  All
of the Company's marketable  securities and a substantial portion of its cash at
the end of 1994 were used to fund the losses  sustained in 1995. At December 31,
1996 working  capital was  $2,758,000  compared to  approximately  $2,273,000 at
December 31, 1995.

         On July 26, 1995, the Company  entered into a Factoring  Agreement with
Milberg  pursuant to which  Milberg  agreed to purchase the  Company's  domestic
accounts  receivable on a non-recourse  basis and to advance to the Company,  at
the Company's  request,  the lesser of 85% of the total  accounts  receivable or
$1,750,000.  Effective  February 1, 1996,  the agreement was amended to increase
the amount of the advance to the lesser of 85% of total  accounts  receivable or
$5,000,000.  Advances  bear  interest  at the  rate of prime  plus one  percent.
Milberg has also agreed to advance to the Company, at


                                       18




<PAGE>



the Company's request,  the lesser of $2,000,000 or 50% of the book value of the
Company's  eligible  inventory located in the United States.  Such advances also
will bear interest at the rate of prime plus one percent.

         On March 22, 1996,  the Company  entered into an agreement for the sale
of the Hong Kong  property.  The sale  closed on April 30,  1996.  In 1995,  the
Company  wrote down the carrying  value of the facility by $1,578,000 to reflect
the  Company's  estimate of the net proceeds of the sale.  The sale  resulted in
additional liquidity and reduced costs for the Company by permitting the Company
to lease space at a cost below the carrying  costs of the former  facility.  The
sale yielded net proceeds to the Company of approximately $842,000 after payment
of the mortgage and the costs associated with the sale.

         The Company's  acquisition  of the Welsh product line required a modest
downpayment.  The balance of the purchase  price is based upon a  percentage  of
sales of Welsh products over five years.  Accordingly,  that acquisition  should
not adversely affect the Company's cash requirements.

         The  purchase  price for the Table Toys product line was paid partly in
shares of  Series B Stock  and  partly  in cash  (approximately  $400,000).  The
Company financed the cash portion of this acquisition  through  borrowings under
its credit lines with Milberg.  The Series B Stock pays a 7% cumulative dividend
payable  at the  Company's  election  in cash or  preferred  stock  based upon a
liquidation value of $3.625 per share and is subject to mandatory  redemption on
December 31, 2005. The Company has certain sinking fund obligations with respect
to such  Series  B Stock  during  the  last  four  years  prior  to  redemption.
Accordingly,  the Company does not believe that these  transactions  will have a
material adverse affect on the Company's liquidity during the next five years.

         The Company paid all dividends on its Series A Stock and Series B Stock
in cash during 1996.

         To the extent the Company may be required to pay any claims relating to
its  discontinued  Micro-Bake  product,  the Company  believes  that its current
reserves will be sufficient to cover such payments.

         In  February  1996,  the  Company  established  a bonus  pool to enable
employees to participate in the Company's profits.  The pool for fiscal 1996 and
1997  consists of 20% of the first  $1,000,000 of pre-tax  earnings,  15% of the
next $1,000,000 of pre-tax earnings and 10% of pre-tax earnings over $2,000,000.
The bonus pool is  intended  to provide  performance-based  compensation  and to
reward those who  contribute to the Company's  success.  The bonus  arrangements
should not adversely affect the Company's  liquidity since it is only payable if
earned.

         The Company's net sales and gross margin, as a percentage of net sales,
is  dependent  on its mix of  business  during a given  time  period.  Variables
include such issues as whether  merchandise is shipped from a domestic warehouse
or directly from the Orient,  whether the merchandise is purchased from overseas
sources or is produced  domestically  and the specific blend of products shipped
to the Company's customers.

         The Company  believes that its cash flow from  operations and available
borrowings will be adequate to meet its obligations for the ensuing year.


                                       19




<PAGE>



INFLATION

         The Company  does not believe  that the  relatively  moderate  rates of
inflation  in recent  years  have had a  significant  effect on its net sales or
profitability.

SEASONALITY

         The toy  industry  is  typically  seasonal  in nature  due to the heavy
demand for toy products during the Christmas season, with the majority of orders
being placed  during the first  two-thirds  of the year for shipment  during the
third and fourth quarters,  and with the majority of collections from such sales
being received in the fourth quarter.


                                       20







<PAGE>



ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See page F-1.




                                       21




<PAGE>



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

None




                                       22




<PAGE>



                                    PART III

 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

IDENTIFICATION OF DIRECTORS

         The  following   table  sets  forth  the  names,   ages  and  principal
occupations  of each of the  Company's  directors and the year in which each was
elected a director.

<TABLE>
<CAPTION>
NAME                   AGE  PRINCIPAL OCCUPATION                         DIRECTOR SINCE
----                   ---  --------------------                         --------------
<S>                    <C>  <C>                                              <C>
Roger Gimbel           66   Vice Chairman of the Board of Directors;           1992
                            Chief Executive Officer and President of
                            RGA


Charmaine Jefferson    43   Director of the Company; Vice President of         1995
                            Business Affairs of de Passe Entertainment;
                            President of Kelan Resources

Howard Kaufman         70   Director of the Company; private investor          1992

Morton J. Levy         75   Chairman of the Board of Directors and             1992
                            Chief Executive Officer of the Company

Irwin Naitove          79   Director of the Company; private investor          1995


Donald D. Shack        68   Director of the Company; member of the law         1992
                            firm Shack & Siegel, P.C.

Barry Shapiro          54   Director, President and Chief Operating            1995
                            Officer of the Company
</TABLE>



         ROGER GIMBEL was  appointed  Vice  Chairman of the Board of  Directors,
Chief Financial Officer and Vice President of the Company in August 1992. Due to
health  reasons,  Mr.  Gimbel  resigned  as  Chief  Financial  Officer  and Vice
President  of the Company in April 1995.  Mr.  Gimbel was one of the founders of
the Company,  and, since the commencement of operations,  he and RGA, one of the
partners of the Joint  Venture,  have  provided  administrative  services to the
Company. See "Certain Relationships and Related Transactions." Mr. Gimbel is the
Chief  Executive  Officer and  President of RGA,  which in addition to providing
services to the Company, is an importer and distributor of personal accessories,
small leather goods and related items.

         CHARMAINE  JEFFERSON  was  appointed  a director of the Company in July
1995. Ms. Jefferson is currently  employed as Vice President of Business Affairs
for de Passe Entertainment which is engaged in the development and production of
television  programming and feature films and talent management and as President
of Kelan Resources, a non-profit arts management consulting firm. From June 1995
to April  1996,  Ms.  Jefferson  was  self-employed  as a  consultant  providing
management advice to not-for-profit corporations. From August 1992 to June 1995,
Ms. Jefferson was employed as the executive




                                   23




<PAGE>



director of the Dance Theater of Harlem, Inc. From 1988 through August 1992, Ms.
Jefferson was Deputy and Acting Commissioner for the New York City Department of
Cultural Affairs.

         HOWARD KAUFMAN was appointed a director of the Company in October 1992.
Mr.  Kaufman has been engaged in the toy business  for  approximately  34 years,
having been a founder and principal  officer of KayBee Stores, a division of the
Melville Corporation.  For more than the past five years, Mr. Kaufman has been a
private  investor.  Mr.  Kaufman is also a director of Berkshire  Life Insurance
Company.

         MORTON J. LEVY was appointed  Chairman and Chief  Executive  Officer of
the Company on March 30, 1995.  Effective  July 1, 1997, Mr. Levy will remain as
Chairman of the Board and Mr. Shapiro will become the Chief  Executive  Officer.
Mr. Levy is a director and officer of each of the Company's subsidiaries. He was
appointed a director of the Company in October 1992 and became a  consultant  to
the Company in 1994 until being  hired as Chief  Executive  Officer on March 30,
1995.  Mr. Levy has been engaged in the toy  business for over 35 years,  having
been a founder and principal officer of Gabriel Industries,  Inc., a diversified
toy  manufacturer.  For  more  than  five  years  prior to his  engagement  as a
consultant to the Company, Mr. Levy was a private investor.

         IRWIN NAITOVE was appointed a director of the Company in May 1995.  Mr.
Naitove has been in corporate  finance for the past 45 years.  For more than the
past five years, Mr. Naitove has been a private investor.

         DONALD D. SHACK was appointed a director of the Company in August 1992.
Mr.  Shack is an attorney  and,  since April 1993,  has been a member of the law
firm of Shack & Siegel, P.C., general counsel to the Company.  From January 1990
through  March 1993,  Mr. Shack was a member of the law firm of Whitman & Ransom
which served as general counsel to the Company during that period.  Mr. Shack is
also a director of the following  publicly-held  companies:  Andover Togs, Inc.,
Ark Restaurants Corp. and International Citrus Corporation.

         BARRY SHAPIRO was appointed  President and Chief  Operating  Officer of
the Company on March 30, 1995.  Effective  July 1, 1997, Mr. Shapiro will become
the Chief  Executive  Officer of the  Company.  Mr.  Shapiro is  Chairman of the
Company's  Hong Kong  subsidiaries  and a  director  and  officer of each of the
Company's  subsidiaries.  He was  appointed  a director  of the Company in April
1995. Mr.  Shapiro has been engaged in the toy business for almost 30 years.  In
November  1994,  Mr.  Shapiro was  appointed  Executive  Vice  President  of the
Company.  From December 1993 until November 1994, he served as Managing Director
for the Company's Hong Kong  subsidiaries,  Joyful World  Enterprises,  Ltd. and
Just  Toys  Products,  Ltd.  From  October  1991 to  November  1993,  he was the
President of Packaging Specialists, a manufacturer and distributor of protective
packaging.  From  January  1984 to June 1991,  Mr.  Shapiro was  Executive  Vice
President and General Manager of Imagineering, Inc.

IDENTIFICATION OF EXECUTIVE OFFICERS

         See Item 1. "Business -- Executive Officers of the Company."




                                       24




<PAGE>



COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership  and changes in  ownership on Forms 3, 4 and 5 with the  Commission
and the National Association of Securities Dealers, Inc. Officers, directors and
greater  than  ten  percent   stockholders  are  required  by  the  Commission's
regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file.

         Based solely on the Company's review of the copies of such forms it has
received and written representations that no Form 5 is required to be filed, the
Company  believes  that all of its  officers,  directors  and  greater  than ten
percent  beneficial owners complied with all filing  requirements  applicable to
them with respect to transactions during fiscal 1996.




                                       25




<PAGE>



ITEM 11 - EXECUTIVE COMPENSATION

         The Summary  Compensation  Table below sets forth  certain  information
concerning  compensation  paid or accrued in 1996 to the Chief Executive Officer
of the Company and the three executive  officers whose total salary and bonus in
1996 exceeded $100,000.

                                                 SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                                       LONG-TERM
                                                                                      COMPENSATION
                                                                                   ------------------
                                                      ANNUAL COMPENSATION              OPTIONS              ALL OTHER
                                               ---------------------------------
  NAME AND PRINCIPAL POSITION         YEAR       SALARY ($)       BONUS ($)(1)        AWARDED (#)          COMPENSATION ($)
---------------------------------   --------   --------------   ----------------   ------------------   ----------------------

<S>                                 <C>        <C>              <C>                <C>                   <C>
Morton J. Levy(2)                     1996        229,327            9,300               50,000                   -
  Chairman of the Board and           1995        166,833              -                 85,000                   -
  Chief Executive Officer

Barry Shapiro(3)                      1996        217,778            7,750               30,000                   -
  President and Chief                 1995        185,000              -                 39,000               45,801(4)
  Operating Officer

Michael Vastola (5)                   1996        143,238              -                   -                  37,500(6)
  Vice President - Finance and        1995        121,446              -                 40,000                   -
  Chief Financial Officer

Robert Pagano(7)                      1996        142,850            2,000               20,000                   -
  Vice President - Marketing
  and Product Planning


-------------------
(1)      Represents bonuses to be paid in 1997 relating to the 1996 fiscal year.
(2)      Mr. Levy was appointed as Chief Executive Officer of the Company in 1995.
(3)      Mr. Shapiro was appointed as an executive officer of the Company at the end of 1994.
(4)      Includes  a $35,470  housing  allowance  paid to Mr.  Shapiro  while he
         served as Managing Director of the Company's Hong Kong subsidiaries.
(5)      Mr. Vastola was appointed as an executive officer of the Company in 1995.  As of November 15, 1996,
         he is no longer employed by the Company.
(6)      Represents amounts paid to Mr. Vastola at the time he left the Company's employment.
(7)      Mr. Pagano was appointed as an executive officer of the Company in 1996.

</TABLE>

         The  following  table sets forth  certain  information  with respect to
options to purchase Common Stock granted in fiscal year 1996 under the Company's
1992 Incentive and  Non-Qualified  Stock Option Plan for the executive  officers
named in the Summary Compensation Table above.




                                       26




<PAGE>



                        OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                                                                                      POTENTIAL REALIZABLE VALUE
                                                                                                       AT ASSUMED ANNUAL RATES
                                                                                                            OF STOCK PRICE
                                                                                                           APPRECIATION FOR
                                                                                                               OPTION TERM
                                        INDIVIDUAL GRANTS                                             --------------------------
-----------------------------------------------------------------------------------------------
                                                 PERCENT OF TOTAL
                                                  OPTIONS GRANTED     EXERCISE
                                                  TO EMPLOYEES IN       PRICE        EXPIRATION
         NAME            OPTIONS GRANTED (#)           1996           ($/SHARE)         DATE           5% ($)          10% ($)
        ------           -------------------           -----          ---------        ------         --------        --------
<S>                      <C>                     <C>                  <C>            <C>              <C>             <C>
Morton J. Levy                  50,000                     22.6%        1.500         12/04/06         47,167          119,531
Barry Shapiro                   30,000                     13.6%        1.500         12/04/06         28,300           71,718
Robert Pagano                   10,000                      4.5%        3.625         02/21/06         --                7,519
                                10,000                      4.5%        1.500         12/04/06          9,433           23,906
</TABLE>


         The  following  table details the value on December 31, 1996 of options
to purchase  Common Stock held by the  executive  officers  named in the Summary
Compensation Table above.

                          FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>

                                     NUMBER OF UNEXERCISED OPTIONS AT                    VALUE OF UNEXERCISED IN-THE-MONEY
                                             DECEMBER 31, 1996                            OPTIONS AT DECEMBER 31, 1996 (1)
                              ---------------------------------------------      -----------------------------------------------

           NAME                  EXERCISABLE (#)          UNEXERCISABLE (#)          EXERCISABLE ($)           UNEXERCISABLE ($)
          ------              -----------------         -------------------      -------------------         -------------------
<S>                           <C>                       <C>                      <C>                         <C>
Morton J. Levy                   120,000                       40,000                      --                         --
Barry Shapiro                     18,200                       76,800                      --                         --
Robert Pagano                      --                          20,000                      --                         --
Michael Vastola                    8,000                         --                        --                         --

----------------
(1)  Based on closing price of the Common Stock on the Nasdaq Stock Market on December 31, 1996
     of $1.3125 per share.
</TABLE>


COMPENSATION ARRANGEMENTS

         In February 1996, the Compensation  Committee of the Board of Directors
(the "Compensation  Committee")  established a company wide bonus pool to enable
employees of the Company to  participate  in profits the Company earned in 1996.
The pool consists of 20% of the first $1,000,000 of pre-tax earnings, 15% of the
next  $1,000,000  of  pre-tax  earning  and  10% of all  pre-tax  earnings  over
$2,000,000.  In respect of 1996,  Mr. Levy and Mr.  Shapiro will receive 30% and
25% respectively, of the pool. The remaining 45% of the pool will be distributed
to the employees of the Company,  subject to the discretion of Messrs.  Levy and
Shapiro.

         In December  1996,  Mr. Levy entered into an agreement with the Company
which  provides  for Mr.  Levy to (i)  relinquish  the post of  Chief  Executive
Officer of the Company on July 1, 1997, (ii) render  consulting  services to the
Company  thereafter  and (iii)  remain as Chairman of the Board.  Until June 30,
1997, Mr. Levy will receive a base salary at the rate of $225,000 per annum. Mr.
Levy will  receive  one-half of the amount he would have been  entitled to under
any bonus pool established by the Compensation  Committee for 1997 as if he were
employed by the Company  for all of 1997.  The Company  will pay Mr. Levy at the
rate of $100,000 per annum during the period from July 1, 1997




                                       27




<PAGE>



through  December 31, 1997;  $75,000 per annum during the period from January 1,
1998 through  December  31,  1998;  and $50,000 per annum during the period from
January 1, 1999 through  December 31, 1999.  Such  payments  will be made to Mr.
Levy's  beneficiary  in the event of his death.  Through  December 31, 1999, the
Company will provide Mr. Levy with the use of an office,  private  telephone and
secretarial  services.  In addition on December 5, 1996 the Company  granted Mr.
Levy a fully  vested and  exercisable  ten year  option to purchase up to 50,000
shares of Common Stock at an exercise price of $1.50 per share.  The Company has
agreed to grant to Mr. Levy an additional  fully vested and exercisable ten year
option to purchase up to 50,000  shares of the Common  Stock on June 30, 1997 at
an exercise  price equal to the closing  price of the Common Stock on the Nasdaq
Stock Market on such date.  Neither of such options is governed by the Company's
stock option plan and are subject to stockholder approval.  Both of such options
will remain outstanding for their full term until exercised,  whether or not Mr.
Levy is still a Director or consultant to the Company.

         In February  1996,  the Board  approved an agreement  with Mr.  Shapiro
which provided that if the Company was acquired  during 1996 and Mr. Shapiro was
terminated as a consequence  thereof,  Mr. Shapiro would be paid an amount equal
to his 1996 base salary.

         All  non-officer  directors  of the Company  annually  receive a fee of
$10,000 per year and options to purchase 5,000 shares at the market price of the
Common Stock on the  anniversary  of their  election as a member of the Board of
Directors.




                                       28




<PAGE>



ITEM 12 - SECURITY OWNERSHIP OF
          CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth certain  information at March 13, 1997,
as to shares of Common Stock  beneficially owned by (i) each person known by the
Company to be the beneficial  owner of more than five percent of the outstanding
Common Stock, (ii) the Company's directors,  the Chief Executive Officer and the
other three  executive  officers  identified in the Summary  Compensation  Table
above and (iii) the directors and officers of the Company as a group.

<TABLE>
<CAPTION>

                NAME AND ADDRESS OF                     AMOUNT AND NATURE OF                 PERCENT OF
                  BENEFICIAL OWNER                    BENEFICIAL OWNERSHIP (1)                 CLASS
                -------------------                   ------------------------               ----------

<S>                                                   <C>                                    <C>
Roger Gimbel .......................................            726,888(2)                     17.5%
  4 West 33rd Street
  New York, New York  10001

RGA Accessories, Inc. ..............................            630,000                        15.2%
  4 West 33rd Street
  New York, New York  10001

Morton J. Levy......................................            268,395(3)                      6.3%
  50 West 23rd Street
  New York, New York  10010

FMR Corp. ..........................................            253,900(4)                      6.1%
  82 Devonshire Street
  Boston, Massachusetts 02109

Kennedy Capital Management, Inc.....................            219,680(5)                      5.3%
  10829 Olive Blvd.
  St. Louis, Missouri 63141

Howard Kaufman......................................             98,888(6)                      2.4%
  Bishops Estate
  Lenox, Massachusetts 01290

Barry Shapiro ......................................             49,866(7)                      1.2%
  50 West 23rd Street
  New York, New York  10010

Donald D. Shack.....................................             34,000(8)                  Less than 1%
  530 5th Avenue
  New York, New York  10036

Robert Pagano.......................................              2,000(9)                  Less than 1%
  50 West 23rd Street
  New York, New York  10010

Charmaine Jefferson ................................              1,000(10)                 Less than 1%
  2003 Victoria Avenue
  Los Angeles, California 90016

</TABLE>



                                       29




<PAGE>





<TABLE>
<CAPTION>

                NAME AND ADDRESS OF                     AMOUNT AND NATURE OF                 PERCENT OF
                  BENEFICIAL OWNER                    BENEFICIAL OWNERSHIP (1)                 CLASS
                -------------------                   ------------------------               ----------

<S>                                                   <C>                                   <C>
Irwin Naitove.......................................              1,000(10)                 Less than 1%
  RR1
  Box 630
  Mount Holly, Vermont  05758

All directors and executive officers as
  a group (twelve persons)..........................          1,207,563(11)                     27.7%

</TABLE>

---------------
(1)   Except as otherwise  indicated  in the  following  footnotes,  the persons
      listed  in the table own of record  the  shares of Common  Stock  opposite
      their name and have sole voting and investment  power with respect to such
      shares of Common Stock.

(2)   Includes 630,000 shares of Common Stock owned by RGA of which Roger Gimbel
      is the controlling stockholder, President and Chief Executive Officer, and
      8,000 shares issuable upon exercise of currently exercisable stock options
      granted under the Company's 1992 Incentive and Non-Qualified  Stock Option
      Plan (the"Plan").

(3)   Includes  1,500  shares  owned by Mr. Levy as  custodian  for his grandson
      under the  Uniform  Gifts to Minors Act and 70,000  shares  issuable  upon
      exercise of currently exercisable stock options granted under the Plan and
      50,000 shares issuable upon exercise of a separate  currently  exercisable
      stock option.

(4)   Based upon  information  set forth in Schedule 13G filed by FMR Corp. with
      the  Securities  and Exchange  Commission  on or about  February 14, 1997,
      Fidelity  Management  and Research  Company  ("Fidelity"),  a wholly-owned
      subsidiary of FMR Corp., is the beneficial owner of 253,900 shares or 6.1%
      of the Common  Stock of the  Company  as a result of acting as  investment
      adviser to several  investment  companies.  Mr.  Edward C. Johnson 3d, FMR
      Corp., through its control of Fidelity, and the aforementioned  investment
      companies  each has sole  power to dispose of these  253,900  shares.  The
      ownership  of  one  investment   company,   Fidelity   Advisor   Strategic
      Opportunities Fund, amounted to 253,900 shares or 6.1% of the Common Stock
      outstanding at December 31, 1996.

(5)   Based upon  information set forth in Schedule 13G filed by Kennedy Capital
      Management,  Inc.  ("Kennedy") with the Securities and Exchange Commission
      on or about February 10, 1997,  Kennedy is the beneficial owner of 219,680
      shares or 5.3% of the Common Stock of the Company as a result of acting as
      an investment advisor.  Kennedy has sole power to dispose of these 219,680
      shares.

(6)   Includes  10,000 shares  issuable  upon exercise of currently  exercisable
      stock options granted under the Plan.

(7)   Includes  23,200 shares  issuable  upon exercise of currently  exercisable
      stock options granted under the Plan.

(8)   Includes  34,000 shares  issuable  upon exercise of currently  exercisable
      stock options granted under the Plan.

(9)   Includes  2,000 shares  issuable  upon  exercise of currently  exercisable
      stock options granted under the Plan.

(10)  Includes  1,000 shares  issuable  upon  exercise of currently  exercisable
      stock options granted under the Plan.

(11)  Includes  202,400 shares  issuable upon exercise of currently  exercisable
      stock  options and 13,799  shares  issuable  upon  exercise of a currently
      exercisable warrant issued in connection with the acquisition by the




                                       30




<PAGE>



      Company of Table Toys. Also includes 1,027 shares issuable upon conversion
      of 1,027 shares of Series B Stock owned by Scott Buske, the Company's Vice
      President  of Domestic  Manufacturing  Operations  and/or his spouse which
      were issued in  connection  with the  acquisition  by the Company of Table
      Toys.




                                       31




<PAGE>



ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ARRANGEMENTS WITH RGA

         U.S. SERVICES ARRANGEMENTS:  Effective October 1, 1992, the Company and
RGA  entered  into an  agreement  pursuant  to which RGA would  provide  certain
administrative services to the Company. RGA was compensated through December 31,
1995 on a formula based on the Company's sales.  Commencing in 1996, the Company
began assuming  internally the functions and services previously provided by RGA
to the Company. RGA continued to provide computer-related  services during 1996.
For such services,  the Company paid RGA a fixed monthly  retainer.  The Company
incurred expenses of $260,000,  $668,000 and $877,000 for the foregoing services
in 1996, 1995 and 1994, respectively. RGA also provided the Company with certain
warehouse services for which the Company incurred expenses of $17,800,  $107,000
and $320,000 in 1996, 1995 and 1994, respectively.

         HONG KONG SERVICES  ARRANGEMENTS:  Services similar to that provided by
RGA  in the  United  States  have  been  provided  to the  Company's  Hong  Kong
subsidiaries by a company in Hong Kong of which Roger Gimbel,  the Vice Chairman
of the Board of Directors of the Company, is a shareholder. The Company incurred
expenses  of  $123,000,   $293,000   and  $217,000  in  1996,   1995  and  1994,
respectively, for such services.

         PUBLIC  WAREHOUSE   FACILITY:   The  Company   utilized,   among  other
facilities, public warehouses in New Jersey which stored the Company's inventory
and  packages  and shipped  such  inventory  in  accordance  with the  Company's
instructions  for a fee based upon a  percentage  of the dollar  value of orders
shipped from such facility. The operator of such warehouse facilities leased the
premises from Jersey Warehouse  Partners,  a general  partnership of which Roger
Gimbel is a General  Partner and in which Mr.  Gimbel  holds a 42.45%  interest.
Rental expense for such warehouse  facility was approximately $900 and $5,300 in
1996 and 1995, respectively.

         During 1995, the Company reexamined its arrangements and began assuming
internally   certain  functions  and  services   previously   provided  by  RGA.
Accordingly,  the services  being  performed by RGA were reduced and the Company
negotiated a fixed fee for the U.S. and Hong Kong services for 1996. At the time
that the arrangements with RGA were entered into,  management  believed that the
arrangements were on terms no less favorable to the Company than could have been
obtained from an unaffiliated third party.

         During 1996,  the Company  decided to move to other  warehouses  and no
longer  utilizes  facilities  affiliated  with Roger Gimbel.  As of December 31,
1996,  the Company  terminated its U.S. and Hong Kong services with RGA and Yick
Bo  Trading  Limited  ("Yick Bo")  and  will  perform  all   of  these  services
internally.




                                       32




<PAGE>



                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
          REPORTS ON FORM 8-K


<TABLE>
<CAPTION>
                                                                                   Page
                                                                                   ----
(a)(1)   Financial Statements:

<S>                                                                               <C>
         Index to Financial Statements                                              F-1

         Report of Independent Auditors                                             F-2

         Consolidated Balance Sheets --
         December 31, 1996 and 1995                                                 F-6

         Consolidated Statements of Operations --
         For each of the years ended
         December 31, 1996, 1995 and 1994                                           F-7

         Consolidated Statements of Changes in
         Stockholders' Equity -- For each of the
         years ended December 31, 1996, 1995 and 1994                               F-8

         Consolidated Statements of Cash Flows --
         For each of the years ended
         December 31, 1996, 1995 and 1994                                           F-9

         Notes to Consolidated Financial Statements                                 F-10

   (2)   Financial Statement Schedules:

Schedule II -- Valuation and Qualifying Accounts                                    F-34
</TABLE>





(3)  Exhibits:

<TABLE>

         <S>      <C>
         3.1      Certificate  of  Incorporation,  incorporated  by reference to
                  Exhibit 3.1 to the  Registration  Statement  on Form S-1 (File
                  No. 33-50878) (the "Form S-1").

         3.2      Certificate  of  Amendment  of  Certificate  of  Incorporation
                  incorporated  by  reference  to Exhibit  3.5 of the  Quarterly
                  Report on Form 10-Q filed  with the  Securities  and  Exchange
                  Commission on November 8, 1996 (the "1996 3rd Quarter 10-Q").
</TABLE>




                                       33




<PAGE>



<TABLE>

         <S>      <C>
         3.3      Certificate  of  Designations,  Preferences  and Rights of the
                  Series A Convertible  Redeemable  Preferred Stock (included in
                  Exhibit 4.1 hereof).

         3.4      Certificate  of  Designations,  Preferences  and Rights of the
                  Series B Convertible  Redeemable  Preferred Stock (included in
                  Exhibit 4.2 hereof).

         3.5      Amended and  Restated  By-laws  incorporated  by  reference to
                  Exhibit 3.4 to the 1996 3rd Quarter 10-Q.

         4.1      Certificate  of  Designations,  Preferences  and Rights of the
                  Series A Convertible Redeemable Preferred Stock,  incorporated
                  by reference to Exhibit 4 of the Quarterly Report on Form 10-Q
                  filed with the Securities and Exchange  Commission on November
                  7, 1995 (the "1995 3rd Quarter 10-Q").

         4.2      Certificate  of  Designations,  Preferences  and Rights of the
                  Series B Convertible Redeemable Preferred Stock,  incorporated
                  by reference to Exhibit 3.2 of the Current  Report on From 8-K
                  filed with the Securities and Exchange  Commission on July 10,
                  1996 (the "July 1996 Form 8-K").

         4.3      Form of  Warrant,  dated  June 26,  1995,  issued  to  various
                  parties in respect of the  aggregate  of 60,000  shares of the
                  Company's  Common Stock,  incorporated by reference to Exhibit
                  4.2 of the July 1996 Form 8-K.

         10.1     Form of Indemnification Agreement between the Company and each
                  of its Directors,  incorporated  by reference to Exhibit 10.12
                  of the Quarterly Report on Form 10-Q filed with the Securities
                  and  Exchange  Commission  on August  14,  1995 (the "1995 2nd
                  Quarter 10-Q").

         10.2     1992   Incentive   and   Non-Qualified   Stock   Option  Plan,
                  incorporated by reference to Exhibit 10.4 of the Form S-1.

         10.3     Amended and Restated 1992  Incentive and  Non-Qualified  Stock
                  Option Plan,  incorporated by reference to Exhibit 10.3 of the
                  1996 3rd Quarter 10-Q.

         10.4     Services Agreement Amendment dated as of June 21, 1995 between
                  the Company and RGA incorporated by reference to Exhibit 10.13
                  of the 1995 2nd Quarter 10-Q.

         10.5     Form of Underwriters Warrant Agreement between the Company and
                  Gruntal & Co.,  Incorporated and Gerard Klauer Mattison & Co.,
                  Inc.,  incorporated  by reference to Exhibit 10.12 of the Form
                  S-1.

         10.6     Factoring  Agreement  dated as of July 26,  1995 with  Milberg
                  Factors,  Inc.,  incorporated by reference to Exhibit 10.17 of
                  the Current  Report on Form 8-K filed with the  Securities and
                  Exchange  Commission  on August 4, 1995 (the "August 1995 Form
                  8-K").
</TABLE>




                                       34




<PAGE>



<TABLE>

         <S>      <C>
         10.7     Letter dated July 20, 1995 from Milberg  Factors,  Inc. to the
                  Company,  incorporated  by reference  to Exhibit  10.18 of the
                  August 1995 Form 8-K.

         10.8     Amendment dated March 21, 1996 between Milberg  Factors,  Inc.
                  and the Company, incorporated by reference to Exhibit 10.13 of
                  the 1995 10-K.

         10.9     Settlement  Agreement  dated  October  30,  1995  between  the
                  Company,  Allan Rigberg,  Rose  Evangelista and JTI Toys, Inc.
                  incorporated  by  reference  to Exhibit  10.10 of the 1995 3rd
                  Quarter 10-Q.

         10.10    Warrant  Agreement  dated as of January 1, 1996  between  Just
                  Toys,  Inc. and Patricof & Co. Capital Corp.,  incorporated by
                  reference to Exhibit  10.11 of the Annual  Report on Form 10-K
                  with  respect to the year ended  December  31, 1996 (the "1995
                  10-K").

         10.11    Agreement  for Sale and  Purchase  of the Hong  Kong  property
                  dated March 22, 1996  between Just Toys  Products  Limited and
                  Advanced  Chemicals  Limited,  incorporated  by  reference  to
                  Exhibit 10.12 of the 1995 10-K.

         10.14    Asset Purchase  Agreement  dated January  22,1996  between the
                  Company and Table Toys, Inc. (the "Asset Purchase Agreement"),
                  incorporated by reference to Exhibit 2.1 of the July 1996 Form
                  8-K.

         10.15    Amendment   dated  April  12,  1996  to  the  Asset   Purchase
                  Agreement,  incorporated  by  reference  to Exhibit 2.2 of the
                  July 1996 Form 8-K.

         10.16    Second  Amendment  dated April 15, 1996 to the Asset  Purchase
                  Agreement,  incorporated  by  reference  to Exhibit 2.3 of the
                  July 1996 Form 8-K.

         21       Subsidiaries  of the  Company  incorporated  by  reference  to
                  Exhibit 10.21 of the 1995 10-K.

         *23.1    Consent of Ernst & Young, LLP

         *23.2    Consent of Richard A. Eisner & Company, LLP

         *27      Financial Data Schedule
</TABLE>

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

         *        Filed herewith



                                       35




<PAGE>



         (b)  Reports on Form 8-K:

         During the fourth quarter of 1996, the Company filed one report on Form
8-K with  respect to Item  5--Other  Events  with the  Securities  and  Exchange
Commission on December 23, 1996.




                                       36






<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the Company has duly caused this report to be
signed on its behalf by the undersigned,  thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of March, 1997.

                                                    JUST TOYS, INC.

                                                    By:  /s/ Morton J. Levy
                                                    ----------------------------

                                                         Morton J. Levy,
                                                         Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this  report  has been duly  signed below by the  following  persons on
behalf of the Company in the capacities and on the date indicated.



<TABLE>
<CAPTION>

        NAME                                       TITLE                            DATE
        ----                                       -----                            ----
<S>                                         <C>                                <C>
/s/ Morton J. Levy                          Chairman of the Board               March 28, 1997
------------------------------------------  and Chief Executive Officer
(Morton J. Levy)

/s/ Barry Shapiro                           President and Chief                 March 28, 1997
------------------------------------------- Operating Officer,
(Barry Shapiro)                             Director

/s/ David Schwartz                          Chief Financial Officer,            March 28, 1997
----------------------------------------    Treasurer and Principal
(David Schwartz)                            Accounting Officer

                                            Director                            March __, 1997
----------------------------------------
(Howard Kaufman)

/s/ Roger Gimbel                            Director                            March 28, 1997
----------------------------------------
(Roger Gimbel)

/s/ Donald D. Shack                         Director                            March 28, 1997
-----------------------------------------
(Donald D. Shack)

/s/ Irwin Naitove                           Director                            March 28, 1997
----------------------------------------
(Irwin Naitove)

/s/ Charmaine Jefferson                     Director                            March 28, 1997
----------------------------------------
(Charmaine Jefferson)

</TABLE>







<PAGE>


                                    FORM 10-K
                              ITEM 14(A)(1) AND (2)

                        JUST TOYS, INC. AND SUBSIDIARIES

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
--------------------------------------------------------------

THE  FOLLOWING   CONSOLIDATED  FINANCIAL  STATEMENTS  OF  JUST  TOYS,  INC.  AND
SUBSIDIARIES ARE INCLUDED IN ITEM 8:

<TABLE>
<CAPTION>
                                                                PAGE
                                                               NUMBER
                                                               ------
<S>                                                           <C>
REPORTS OF INDEPENDENT AUDITORS                                F-2-5

BALANCE SHEETS AS AT DECEMBER 31, 1996 AND 1995                  F-6

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994                                 F-7

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994             F-8

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994                                 F-9

NOTES TO FINANCIAL STATEMENTS                                    F-10

THE FOLLOWING  CONSOLIDATED  FINANCIAL STATEMENT SCHEDULE OF
JUST TOYS, INC. AND SUBSIDIARIES IS INCLUDED IN ITEM 14(A)(2):

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS                 F-34

</TABLE>


ALL OTHER SCHEDULES FOR WHICH PROVISION IS MADE IN THE APPLICABLE  REGULATION OF
THE  SECURITIES  AND  EXCHANGE  COMMISSION  ARE NOT  REQUIRED  UNDER THE RELATED
INSTRUCTIONS OR ARE INAPPLICABLE AND, THEREFORE, HAVE BEEN OMITTED.

                                    F-1





<PAGE>


                         Report of Independent Auditors

We  have  audited the  accompanying consolidated balance sheets  of  Just  Toys,
Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995,  and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for the years then ended. Our audits also included the financial statement
schedule  for the years ended  December 31, 1996 and 1995 listed in the index at
Item 14(a).  These financial  statements and schedule are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Just Toys, Inc.
and subsidiaries at December 31, 1996 and 1995, and the consolidated  results of
their  operations  and their cash flows for the years then ended,  in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

                                                           /s/ ERNST & YOUNG LLP

New York, New York
February 28, 1997

                                      F-2





<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Just Toys, Inc.
New York, New York

     We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows of Just Toys, Inc. and
subsidiaries for the year ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the 1994 financial statements of Just Toys Products, Limited and Joyful
World Enterprises, Limited, wholly owned subsidiaries, which statements reflect
total revenues constituting 39 percent of the consolidated total for 1994. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amount included for Just Toys
Products, Limited and Joyful World Enterprises, Limited, is based solely on the
reports of the other auditors.

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

     In our opinion, based upon our audit and the reports of other auditors, the
consolidated financial statements enumerated above present fairly, in all
material respects, the consolidated results of operations and cash flows of Just
Toys, Inc. and subsidiaries for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.

     As described in Note 13, the Company is involved in several matters of
litigation, the outcome of which is uncertain.

     As discussed in Note 2, the Company adopted in 1994 the method of
accounting for certain investments and debt and equity securities prescribed by
Statement of Financial Accounting Standards No. 115.

     The audit above include Schedule II for the year ended December 31, 1994.
In our opinion, the schedule  referred to above presents fairly the information
set forth therein, in conformity with the applicable accounting regulation of
the Securities and Exchange Commission.



/s/ Richard A. Eisner & Company, LLP

New York, New York
March 27, 1995

With respect to Note K[4][a] and K[4][c] in the 1994 Annual Report,
April 10, 1995

                                      F-3





<PAGE>

                          [LETTERHEAD OF ERNST & YOUNG]


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Just Toys Products Limited
(Incorporated in Hong Kong with limited liability)

We have audited the accompanying balance sheets of Just Toys Products Limited as
at  31  December  1994  and  31  December  1993  and  the  related  statement of
operations, changes in stockholders' equity and cash flows for the year ended 31
December 1994 and the period  from 22  September  1992  (date of  incorporation)
to 31 December  1993.  These  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Just Toys Products Limited as at 31
December  1994 and 31 December  1993 and the results of its  operations  and its
cash  flows  for the year  ended 31  December  1994 and for the  period  from 22
September  1992 to 31 December  1993,  in  conformity  with  generally  accepted
accounting principles in the United States of America.

The  accompanying  financial  statements  have been prepared  assuming Just Toys
Products  Limited will continue as a going concern.  As more fully  described in
Note 1, the Company is a wholly-owned  subsidiary of Just Toys,  Inc. Just Toys,
Inc. has suffered  recurring  losses and has sustained  negative cash flows from
operations.  These conditions raise  substantial  doubt about Just Toys,  Inc.'s
ability to continue as a going concern. Because of the aforementioned conditions
relating  to Just Toys,  Inc.  and the  uncertainties  surrounding  its plans to
address  its  liquidity  problems,  the parent  company's  actions  could have a
substantial effect on the Company's assets,  therefore there is also substantial
doubt about whether the Company will continue as a going concern.  The financial
statements  of Just Toys  Products  Limited do not  include any  adjustments  to
reflect the possible future efforts on the  recoverability and classification of
assets or the amount and classification of liabilities that may  result from the
outcome of this uncertainty.


/s/ ERNST & YOUNG

20 February 1995


                                      F-4





<PAGE>

                          [LETTERHEAD OF ERNST & YOUNG]

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Joyful World Enterprises Limited
(Incorporated in Hong Kong with limited liability)

We have audited  the accompanying balance  sheet  of  Joyful  World  Enterprises
Limited as at 31 December 1994 and the related statement of operations,  changes
in stockholders' deficiency  and cash  flows for the period from 19 October 1993
(date of  incorporation) to 31 December 1994. These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Joyful World Enterprises Limited as
at 31 December 1994 and the results of its operations and its cash flows for the
period from 19 October 1993 to 31 December  1994, in conformity  with  generally
accepted accounting principles in the United States of America.

The accompanying  financial  statements have been prepared assuming Joyful World
Enterprises Limited will continue as a going concern. As more fully described in
Note 1, the Company is a wholly-owned  subsidiary of Just Toys,  Inc. Just Toys,
Inc. has suffered  recurring  losses and has sustained  negative cash flows from
operations.  These conditions raise  substantial  doubt about Just Toys,  Inc.'s
ability to continue as a going concern. Because of the aforementioned conditions
relating  to Just Toys,  Inc.  and the  uncertainties  surrounding  its plans to
address  its  liquidity  problems,  the parent  company's  actions  could have a
substantial effect on the Company's assets,  therefore there is also substantial
doubt about whether the Company will continue as a going concern.  The financial
statements of Joyful World Enterprises Limited do not include any adjustments to
reflect the possible future effect on the recoverability and  classification  of
assets or the amount and  classification of liabilities that may result from the
outcome of this uncertainty.

/s/ Ernst & Young


20 February 1995

                                       F-5







<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
ASSETS                                                                                December 31,
                                                                             ----------------------------
                                                                                 1996             1995
                                                                             ------------    ------------

<S>                                                                          <C>             <C>
Current assets:
   Cash ..................................................................   $    153,707    $    241,443
   Accounts receivable, net of allowances of
     $603,000 and $1,017,000 (Note 5) ....................................        287,578       1,779,598
   Inventories (Note 6) ..................................................      4,113,300       3,270,206
   Prepaid and refundable income taxes ...................................         28,914         248,459
   Prepaid expenses and other current assets (Note 7) ....................      1,118,128         646,422
                                                                             ------------    ------------
          Total current assets ...........................................      5,701,627       6,186,128

Property and equipment, at cost, net of accumulated
   depreciation and amortization (Note 8) ................................      3,504,468       2,653,702
Goodwill, net of accumulated amortization (Note 3)  ......................        660,376
Property held for sale (Note 10)  ........................................                      2,907,340
Other assets .............................................................        119,650          76,188
                                                                             ------------    ------------

          TOTAL ..........................................................   $  9,986,121    $ 11,823,358
                                                                             ============    ============

LIABILITIES

Current liabilities:
   Current portion of long-term debt (Note 10)  ..........................                   $    360,000
   Accounts payable ......................................................   $  1,622,532       1,925,467
   Due RGA Accessories, Inc. (Note 11)  ..................................         15,417          45,242
   Accrued liabilities (Note 12)  ........................................      1,305,604       1,582,761
                                                                             ------------    ------------
          Total current liabilities ......................................      2,943,553       3,913,470

Long-term debt, less current portion (Note 10)  ..........................                      1,886,000
Deferred income taxes (Note 15) ..........................................         15,971          15,971
Series B Convertible  Redeemable  Preferred  Stock,
   650,000 shares  authorized, 538,243 shares issued and
   outstanding (liquidation value $1,951,131)(Note 4) ....................        972,778
                                                                             ------------    ------------
          Total liabilities ..............................................      3,932,302       5,815,441
                                                                             ------------    ------------

Commitments and contingencies (Note 13)

STOCKHOLDERS' EQUITY

Stockholders' equity (Note 1):
   Preferred stock, $1.00 par value, 1,000,000 shares
     authorized (Note 4):
        Series A Convertible Redeemable Preferred
           Stock, 150,000 shares authorized, 120,000
           shares issued and outstanding
           (liquidation value $120,000) ..................................        120,000         120,000
   Common stock, $.01 par value, 15,000,000 shares
     authorized, 4,150,000 issued and outstanding ........................         41,500          41,500
   Additional paid-in capital ............................................     29,795,768      29,795,768
   Accumulated deficit ...................................................    (23,903,449)    (23,949,351)
                                                                             ------------    ------------
          Total stockholders' equity .....................................      6,053,819       6,007,917
                                                                             ------------    ------------

          TOTAL ..........................................................   $  9,986,121    $ 11,823,358
                                                                             ============    ============

</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                      F-6







<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                         Year Ended December 31,
                                                --------------------------------------------
                                                     1996            1995            1994
                                                ------------    ------------    ------------
<S>                                             <C>             <C>             <C>
Net sales (Note 14) .........................   $ 22,055,784    $ 19,588,348    $ 23,875,036

Cost of goods sold ..........................     13,568,684      13,338,943      22,995,704
                                                ------------    ------------    ------------
Gross profit ................................      8,487,100       6,249,405         879,332
                                                ------------    ------------    ------------

Expenses:
   Merchandising, selling,
     warehousing and distribution ...........      4,405,800       6,699,951       9,508,008
   Royalties ................................        709,656       1,868,838       3,081,057
   General and administrative ...............      2,931,329       3,746,812       3,779,616
                                                ------------    ------------    ------------
          Total .............................      8,046,785      12,315,601      16,368,681
                                                ------------    ------------    ------------

Operating income (loss) .....................        440,315      (6,066,196)    (15,489,349)
Other income (expenses):
   Interest expense .........................       (545,800)       (357,562)       (284,652)
   Interest and dividend income .............         12,927         141,440         467,379
   Write down of investment in
     Hong Kong property .....................                     (1,578,000)
   Settlement of arbitration &
     related legal expenses .................                       (909,594)
   Other income (expense) ...................        247,972         (17,012)       (213,698)
                                                ------------    ------------    ------------

Income (loss) before income taxes
   and change in accounting principle .......        155,414      (8,786,924)    (15,520,320)

Provision for income taxes (Note 15) ........                                        275,212
                                                ------------    ------------    ------------

Income (loss) before change in
   accounting principle and preferred
   stock dividends and accretion ............        155,414      (8,786,924)    (15,795,532)

Cumulative effect of change in
   accounting principle (Note 2) ............                                         74,790
                                                ------------    ------------    ------------


Net income (loss) ...........................        155,414      (8,786,924)    (15,720,742)

Preferred stock dividends and
   accretion (Note 4) .......................        109,512
                                                ------------    ------------    ------------

Net income (loss) attributable to
   common stockholders ......................   $     45,902    $ (8,786,924)   $(15,720,742)
                                                ============    ============    ============

Weighted average common shares
   outstanding ..............................      4,150,000       4,150,000       4,150,000
                                                ============    ============    ============

Per share data:

Income (loss) attributable to common
   stockholders before change in
   accounting principle .....................   $        .01    $      (2.12)   $      (3.81)

Cumulative effect of change in
   accounting principle per share ...........                                            .02
                                                ------------    ------------    ------------


Net income (loss) attributable to
   common stockholders ......................   $        .01    $      (2.12)   $      (3.79)
                                                ============    ============    ============

</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                      F-7





<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                            SERIES A                                                    UNREALIZED
                        PREFERRED STOCK           COMMON STOCK                             GAIN         RETAINED
                   -----------------------   -----------------------     ADDITIONAL      (LOSS) ON        EARNINGS
                   NUMBER OF                  NUMBER OF                   PAID-IN       MARKETABLE     (ACCUMULATED
                    SHARES        AMOUNT       SHARES       AMOUNT        CAPITAL       SECURITIES       DEFICIT)         TOTAL
                   ---------     --------     ---------     -------     -----------     ----------     ------------    -----------
<S>                <C>           <C>          <C>           <C>         <C>             <C>            <C>             <C>
Balance-January
  1, 1994......                               4,150,000    $  41,500     $29,795,768                    $558,315       $30,395,583
Adjustment of
  beginning
  balance for
  change in
  accounting
  method(Note
  2)...........                                                                         $(74,790)                          (74,790)
Change in
  unrealized
  loss on
  marketable
  securities...                                                                            (6,421)                          (6,421)
Net loss.......                                                                                        (15,720,742)    (15,720,742)
                                              ---------     -------     -----------     ----------     ------------    -----------
Balance -
  December 31,
  1994.........                               4,150,000      41,500      29,795,768       (81,211)     (15,162,427)     14,593,630
Shares issued
  in
  arbitration
  settlement...     120,000      $120,000                                                                                  120,000
Change in
  unrealized
  loss on
  marketable
  securities...                                                                            81,211                           81,211
Net loss.......                                                                                         (8,786,924)     (8,786,924)
                   ---------     --------     ---------     -------     -----------     ----------     ------------   ------------
Balance -
  December 31,
  1995.........     120,000       120,000     4,150,000      41,500      29,795,768          -0-       (23,949,351)      6,007,917
Preferred stock
  dividends and
  accretion
  (Note 4).....                                                                                           (109,512)       (109,512)
Net income.....                                                                                            155,414         155,414
                   ---------     --------     ---------     -------     -----------     ----------     ------------   ------------
Balance -
  December 31,
  1996.........     120,000      $120,000     4,150,000     $41,500     $29,795,768      $   -0-       $(23,903,449)  $  6,053,819
                   ---------     --------     ---------     -------     -----------     ----------     ------------   ------------
                   ---------     --------     ---------     -------     -----------     ----------     ------------   ------------
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                      F-8






<PAGE>
                        JUST TOYS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                            Year Ended December 31,
                                                                                 ---------------------------------------------
                                                                                       1996            1995           1994
                                                                                       ----            ----           ----
<S>                                                                              <C>              <C>              <C>
Cash flows from operating activities:
  Net income (loss)  ........................................................    $    155,414     $ (8,786,924)    $(15,720,742)
  Adjustments to reconcile net income (loss) to
    net cash provided by (used in) operating activities:
      Depreciation and amortization .........................................         908,342        1,774,611        2,838,326
      Gain on sale of Hong Kong property ....................................        (119,000)
      Write off of barter credits ...........................................                          976,000
      Write down of investment in Hong Kong property ........................                        1,578,000
      Issuance of preferred stock in arbitration settlement .................                          120,000
      Deferred income taxes .................................................                                           273,200
      Realized and unrealized (gain) loss on marketable
         securities .........................................................                           (46,069)          6,421
      Cumulative effect of change in accounting principle ...................                                           (74,790)
      Loss from Celt Specialty Partners, Inc. ...............................                                           248,020
      Changes in  operating  assets and  liabilities  (net of the  effects of
         acquisitions in 1996 and 1995):
         (Increase) decrease in:
             Accounts receivable ............................................       1,492,020          592,770        4,467,730
             Inventories ....................................................        (443,094)       1,241,092        1,220,926
             Prepaid and refundable income taxes ............................         219,545         (182,660)       2,738,136
             Prepaid expenses and other current assets ......................        (471,706)         253,987         (449,509)
             Other assets ...................................................         (43,462)          54,004          (30,574)
           Increase (decrease) in:
             Accounts payable ...............................................        (302,935)        (802,993)       1,089,311
             Due RGA Accessories, Inc. ......................................         (29,825)         (69,691)           3,318
             Accrued liabilities ............................................        (277,157)      (1,408,229)       1,046,297
             Income taxes payable ...........................................                         (473,422)           2,012
                                                                                 ------------     ------------     ------------
               Net cash provided by (used in) operating
                 activities .................................................       1,088,142       (5,179,524)      (2,341,918)
                                                                                 ------------     ------------     ------------
Cash flows from investing activities:
  Acquisition of property and equipment .....................................        (921,047)      (1,073,071)      (1,956,463)
  Acquisition of certain assets of Table Toys, Inc. .........................      (1,018,654)
  Net proceeds from the sale of the Hong Kong property ......................       3,088,489
  Purchase of marketable securities .........................................                       (2,908,731)     (24,089,091)
  Redemption of marketable securities .......................................                        7,551,463       29,712,702
  Investment in Celt Specialty Partners, Inc. ...............................                           (1,000)      (1,949,650)
                                                                                 ------------     ------------     ------------
               Net cash provided by investing activities ....................       1,148,788        3,568,661        1,717,498
                                                                                 ------------     ------------     ------------
Cash flows from financing activities:
  Payment of long-term debt .................................................      (2,246,000)        (316,000)        (312,000)
  Dividends paid ............................................................         (78,666)
                                                                                 ------------     ------------     ------------
              Net cash used in financing activities .........................      (2,324,666)        (316,000)        (312,000)
                                                                                 ------------     ------------     ------------
Net decrease in cash ........................................................         (87,736)      (1,926,863)        (936,420)
Cash - beginning of year ....................................................         241,443        2,168,306        3,104,726
                                                                                 ------------     ------------     ------------
Cash - end of year ..........................................................    $    153,707     $    241,443     $  2,168,306
                                                                                 ============     ============     ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                       F-9






<PAGE>



                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - Description of Business and Basis of Presentation:

Just Toys, Inc. (the "Company")  designs,  develops,  manufactures,  markets and
distributes  toys and sport products for children of various ages. The Company's
principal  customers are located in the United  States and consist  primarily of
toy stores and mass merchandisers, and to a lesser extent, discount drug chains,
supermarket  chains,  sporting  goods stores,  catalogers  and gift stores.  The
consolidated    financial   statements   include   the  accounts  of the Company
and its  wholly-owned  subsidiaries  described below.  Significant  intercompany
balances and transactions have been eliminated in consolidation.

In September 1992, the Company organized a wholly-owned foreign subsidiary, Just
Toys Products,  Limited ("JTP"), which was incorporated in Hong Kong. In October
1993, the Company  organized a  wholly-owned  foreign  subsidiary,  Joyful World
Enterprises, Limited ("JWE"), which was incorporated in Hong Kong.

The consolidated  financial  statements include the following  applicable to the
foreign subsidiaries:

<TABLE>
<CAPTION>

                                                     December 31,
                                       ----------------------------------------
                                            1996         1995           1994
                                       -----------   -----------    -----------
<S>                                     <C>          <C>             <C>
Assets .............................    $1,125,694   $ 4,167,473     $6,205,145
Liabilities ........................       894,679     4,255,930      4,002,308
Stockholder's equity (deficit) .....        41,021       (88,457)     2,202,837
Revenues ...........................     5,431,127     4,772,364      9,254,786
Net income (loss) ..................       129,478    (2,291,294)       (90,030)
</TABLE>

In May  1994,  a newly  formed  wholly-owned  subsidiary  of the  Company,  Just
Manufacturing, Inc. ("JMI") entered into a 50% joint venture with Celt Specialty
Products,  Inc.  ("Products")  by  jointly  forming a  corporation  called  Celt
Specialty  Partners,  Inc. ("Celt").  Celt is a manufacturer of foam and plastic
toys,  sporting goods and other specialty toy products;  Just Toys, Inc. was the
principal customer of Celt in 1994. Operations of JMI and Celt are included from
May 10, 1994,  the date of inception.  The Company's  investment and advances to
Celt  were  accounted  for  under  the  equity  method in 1994. During 1994, the
Company recognized the loss in excess of the  other  partners'  investment.   On
April  23, 1995,  the Company  purchased  the  remaining  50% joint  interest in
Celt.  The  accounts  of  Celt are consolidated with the Company from January 1,
1995.


                                      F-10


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - Description of Business and Basis of Presentation:
(continued)

On January 22,  1996,  the Company  executed an  agreement  to purchase  certain
assets of Table Toys,  Inc.  ("Table Toys").  The Table Toys products  include a
line of play tables which are  compatible  with most brands of toy  construction
blocks and a line of toy construction blocks. The acquisition closed on June 28,
1996. On February 1, 1996,  the Company  acquired the toy line and the rights to
use the "Welsh" name for toys from Welsh Company, Inc. ("Welsh").  The Welsh toy
line consists of doll carriages and strollers.

NOTE 2 - Summary of Significant Accounting Policies:

Marketable securities:

In May 1993,  the  Financial  Accounting  Standards  Board  issued  Statement of
Financial  Accounting  Standards No. 115 ("SFAS 115"),  "Accounting  for Certain
Investments in Debt and Equity  Securities".  The Company adopted the provisions
of the new  standard for  investments  held as of or acquired  after  January 1,
1994. In accordance  with the Statement prior period  financial  statements have
not been restated to reflect the change in accounting principle.  The marketable
securities are classified as  available-for-sale  and consist  substantially  of
United States Treasury bills and notes.  Unrealized  losses at December 31, 1994
were $81,211. The Company had realized losses of $35,141 in 1995 and $213,698 in
1994. The cumulative effect as of January 1, 1994 of adopting SFAS 115 decreased
the loss by $74,790 or $0.02 per share. There was no tax benefit attributable to
the  unrealized  loss.  The opening  balance of the  stockholders'  equity as of
January 1, 1994 was decreased by $74,790 to reflect the net  unrealized  holding
losses on securities classified as available-for-sale,  with unrealized gain and
losses, reported in a separate component of stockholders' equity. Realized gains
and  losses  are  based on the  costs of  securities  sold  using  the  specific
identification method. If a decline in value of available-for-sale securities is
judged to be other than  temporary,  the decline in value is included in income.
Interest and dividend income on securities are included in income.




                                      F-11


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - Summary of Significant Accounting Policies:  (continued)

Inventories:

Inventories  are  stated at the  lower of cost  (first-in,  first-out  basis) or
market. The Company supplies certain purchased  material  components used in its
product lines to third-party manufacturers.

Property and equipment:

Assets  are  stated at cost.  The  Company  owns the  molds  and  tools  used in
production of the Company's products by third-party manufacturers. The molds and
tools  are  depreciated  using  the  straight-line  method  over the life of the
related product licensing agreement, if applicable, or three years, whichever is
less.  Obsolete  molds and  tools are  written-off  when no longer  being  used.
Depreciation and amortization lives and methods used are as follows:

<TABLE>
<CAPTION>

                                            Method         Life
                                         -------------   ----------
<S>                                      <C>             <C>
        Buildings . . . . . . . . . . .  Straight-line   40 Years
        Molds and tools . . . . . . . .  Straight-line    3 Years
        Manufacturing equipment . . . .  Accelerated      7 Years
        Furniture, fixtures and office
          equipment . . . . . . . . . .  Accelerated     5-7 Years
        Leasehold improvements. . . . .  Straight-line   Shorter of
                                                             life of
                                                             lease or
                                                             useful
                                                             life
</TABLE>


Income taxes:

The Company accounts for income taxes in accordance with Statement of Accounting
Standards No. 109 ("SFAS 109")  "Accounting For Income Taxes" which requires use
of the liability  method of accounting  for income taxes.  The liability  method
measures  deferred income taxes by applying enacted statutory rates in effect at
the balance  sheet date to the  differences  between the tax bases of assets and
liabilities  and  their  reported  amounts  in  the  financial  statements.  The
resulting  asset or liability is adjusted to reflect  changes in the tax laws as
they occur.

Research and product development costs:

Expenditures  for  research  and  product   development  costs  are  charged  to
operations as incurred.  Amounts of research and product  development costs were
approximately  $62,800,  $324,300  and  $953,700  during  1996,  1995 and  1994,
respectively.


                                      F-12


<PAGE>
                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - Summary of Significant Accounting Policies:  (continued)

Royalties:

The Company enters into agreements to license  trademarks,  copyrights,  patents
and inventions.  The Company expenses  royalties at the time the related product
is sold. The agreements may call for minimum  amounts of royalties to be paid in
advance and throughout the term of the agreement which are  nonrefundable in the
event that product sales fail to meet certain minimum levels.  Advance royalties
resulting  from  such  transactions  are  stated  at  amounts  estimated  to  be
recoverable  from  future  sales of the  related  products.  Prepaid  and future
guaranteed  royalties  applicable to  discontinued  products or where sales were
below expectations are also expensed.

Advertising costs:

The Company expenses  advertising  costs as incurred.  Advertising costs for the
years ended December 31, 1996, 1995 and 1994 amounted to $225,000,  $593,000 and
$2,332,000, respectively.

Income (loss) per share attributable to common stockholders:

Income  (loss) per share  attributable  to common  stockholders  is based on the
weighted  average  number of shares and common share  equivalents,  if dilutive,
outstanding during each year. The preferred stock is not considered to be common
stock equivalents and assumed conversion would be anti-dilutive.

Foreign currency translation:

Assets and liabilities are translated at year-end rates of exchange.  Income and
expense  accounts  are  translated  at the average of  exchange  rates in effect
during the period.  Realized foreign exchange  transaction  gains and losses are
included  in  income  and are not  material.  The  cumulative  foreign  currency
adjustment was not material.

Use of 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 at the date of the financial  statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.




                                      F-13


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - Summary of Significant Accounting Policies:  (continued)

Stock-based compensation:

In October 1995, the Financial  Accounting  Standards Board issued  Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). SFAS 123 is effective for transactions after December 15, 1994 and
prescribes  accounting and reporting standards for all stock-based  compensation
plans,  including  employee  stock  options,  restricted  stock,  employee stock
purchase plans and stock  appreciation  rights.  SFAS 123 requires  compensation
expense  to be  recorded  (i) using  the new fair  value  method  or (ii)  using
existing accounting rules prescribed by Accounting  Principles Board Opinion No.
25  "Accounting   for  Stock  Issued  to  Employees   ("APB  25"),  and  related
interpretations  with pro forma disclosure of what net income and earnings would
have been had the  Company  adopted the new fair value  method.  The Company has
elected to continue to account for its stock issued to  employees in  accordance
with APB 25.

Goodwill:

Goodwill  represents  the cost in  excess  of the fair  market  value of the net
assets  acquired of Table Toys.  Goodwill is being  amortized on a straight-line
basis over 15 years.  Amortization  of goodwill for the year ended  December 31,
1996 and accumulated amortization at December 31, 1996 approximated $22,800.

Accretion of Preferred Stock B:

The redemption value of the Series B Convertible  Redeemable  Preferred Stock is
being accreted using the interest method for redemption on December 31, 2005.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of:

The  Company  accounted  for the  impairment  of  long-lived  assets at the time
management  decided to dispose of such  assets.  In March  1995,  the  Financial
Accounting Standards Board issued Statement No. 121 ("SFAS 121"), Accounting for
the  Impairment of Long-Lived  Assets and  Long-Lived  Assets to be Disposed Of,
which  requires  impairment  losses to be recorded on long-lived  assets used in
operations when indicators of impairment are present and the  undiscounted  cash
flows  estimated  to be  generated  by those  assets  are less than the  assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets to
be disposed of. The Company  adopted  SFAS 121 in the first  quarter of 1996 and
does not believe that any of its long-lived assets are impaired.




                                      F-14


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - Acquisition:

On January 22, 1996, the Company  entered into an agreement to purchase  certain
assets of Table Toys.  Because Table Toys had filed a petition  under Chapter 11
of the Federal  Bankruptcy  laws, the acquisition was subject to approval by the
Bankruptcy Court. The acquisition was approved on May 9, 1996 and closed on June
28, 1996.

The  Company  accounted  for  the  acquisition  under  the  purchase  method  of
accounting and allocated the purchase price as follows:

 Assets acquired:

<TABLE>
<S>                                         <C>
 Inventories. . . . . . . .                 $  400,000
 Property and Equipment . .                    877,439
 Goodwill . . . . . . . . .                    683,147
                                            ----------
                                            $1,960,586
                                            ==========
</TABLE>

The acquisition of the above assets was financed as follows:

<TABLE>
<S>                                         <C>
 Cash paid. . . . . . . . .                 $  391,291
 Series B Convertible
   Redeemable Preferred Stock                  941,932
 Other expenses incurred. .                    627,363
                                            ----------
                                            $1,960,586
                                            ==========
</TABLE>

The consideration paid for the assets acquired included 538,243 shares of Series
B Convertible  Redeemable Preferred Stock with a liquidation value of $3.625 per
share (See Note 4). Such shares were valued at approximately  $1.75 per share at
the time of the  acquisition.  The Company  also issued  warrants to purchase an
aggregate of 60,000 shares of the Company's Common Stock at  $3.625  per  share.
The value of the warrants were considered not material.  Other expenses incurred
include professional and related costs.

All of the sales, and related cost of sales, of Table Toys products for 1996 are
included in the results of operations of the Company for the year ended December
31, 1996.  Prior to the Company's  acquisition of Table Toys,  Table Toys,  Inc.
incurred  an  operating  loss  during  the six  months  ended  June 30,  1996 of
approximately  $565,000  (unaudited),   primarily  related   to  the  Bankruptcy
proceedings.  Pro forma  unaudited  summary  results of operations  for the year
ended December  31,  1995,  assuming  the  acquisition occurred at the beginning
of the year, is as follows:

<TABLE>
<S>                                         <C>
 Revenue. . . . . . . . . .                 $25,082,000
 Net loss . . . . . . . . .                 (12,326,000)
 Net loss applicable to
   common stockholders. . .                 (12,584,000)
 Net loss applicable to
   common stockholders
   per share. . . . . . . .                 $    (3.03)
</TABLE>




                                      F-15


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - Preferred Stock:

Series A Convertible Redeemable Preferred Stock

The  Board  of  Directors  of the  Company  has  authorized  150,000  shares  of
non-voting  Series A Convertible  Redeemable  Preferred Stock ("Series A Stock")
with  par  value  $1.00  per  share of  which  120,000  shares  are  issued  and
outstanding.  The Series A Stock ranks senior to the Company's common stock, par
value $0.01 per share  ("Common  Stock")  with  respect to  dividend  rights and
rights on  liquidation,  winding-up  and  dissolution.  The Series A Stock has a
cumulative  preferred  quarterly  dividend  of 6%  per  annum  of the  Series  A
Liquidation Value (as defined below) payable either in cash or additional shares
of Series A Stock, at the Company's  option. As long as any shares of the Series
A Stock remain  outstanding,  no cash  dividends may be paid on the Common Stock
nor can Common  Stock be acquired  by the Company  unless all accrued and unpaid
dividends  have  been  paid on the  Series A  Stock.  The  Series A Stock  has a
liquidation  preference  over the Common  Stock in an amount  equal to $1.00 per
share (the "Series A Liquidation  Value") plus dividends  accrued and unpaid. At
the holder's  option until  December 31, 1998, the Series A Stock is convertible
into Common Stock at a conversion  price of $2.00 per share  (subject to certain
adjustments). The Series A Stock is redeemable at the Series A Liquidation Value
plus dividends accrued and unpaid at the Company's option at any time.

Series B Convertible Redeemable Preferred Stock

The Board of  Directors  of the Company has also  authorized  650,000  shares of
non-voting  Series B Convertible  Redeemable  Preferred Stock ("Series B Stock")
with par value $1.00 per share of which 538,243 are issued and outstanding.  The
Series B Stock ranks senior to the Common Stock and junior to the Series A Stock
with  respect  to  dividend  rights and  rights on  liquidation,  winding up and
dissolution. The Series B Stock has a cumulative preferred quarterly dividend of
7% per annum of the Series B Liquidation Value (as defined below) payable either
in cash or additional shares of Series B Stock, at the Company's option. As long
as any shares of the Series B Stock remain outstanding, no cash dividends can be
paid on the Common Stock nor can Common Stock be acquired by the Company  unless
all  accrued and unpaid  dividends  have been paid on the Series B Stock and any
required  redemptions  have  been  provided  for.  The  Series  B  Stock  has  a
liquidation  preference  over the Common  Stock in an amount equal to $3.625 per
share (the "Series B Liquidation  Value") plus dividends  accrued and unpaid. At
the  holder's  option,  the shares of Series B Stock are  convertible  in Common
Stock at a rate of one  share of Common  Stock for each  share of Series B Stock
(subject to certain adjustments). After December 30, 1996, the Series B Stock is
redeemable  at the  Company's  option at the  Series B  Liquidation  Value  plus
dividends accrued and unpaid.




                                      F-16


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - Preferred Stock: (continued)

The Series B Stock is subject to mandatory redemption through the operation of a
sinking  fund at the Series B  Liquidation  Value  plus  dividends  accrued  and
unpaid.  The  Company is  required,  at its  option,  to redeem or set apart for
payment,  on each  December  31  commencing  2001 and  ending  2004,  an  amount
sufficient to redeem 10% of the Series B Stock issued and any additional  shares
issued as dividends on such  shares.  The Company may apply as a credit  against
its sinking fund  obligations any shares which have been previously  redeemed or
converted.  All remaining and  outstanding  shares shall be redeemed on December
31, 2005 at the Series B Liquidation Value plus dividends accrued and unpaid.

NOTE 5 - Accounts Receivable and Allowances:

On July 26, 1995,  the Company  entered into a Factoring  Agreement with Milberg
Factors,  Inc.  ("Milberg")  pursuant to which  Milberg  agreed to purchase  the
Company's domestic accounts  receivable on a non-recourse  basis, and to advance
to the Company,  at the Company's  request,  the lesser of 85% of total accounts
receivable or $1,750,000.  Effective February 1, 1996, the agreement was amended
to  increase  the amount of the  advance to the lesser of 85% of total  accounts
receivable or $5,000,000. The factoring charge is .65% of receivables.  Advances
bear  interest  at the rate of prime (at  December  31,  1996 - 8.25%)  plus one
percent.  Milberg has also agreed to advance to the  Company,  at the  Company's
request,  the lesser of $2,000,000 or 50% of the Company's  inventory located in
the United  States.  Such  advances also will bear interest at the rate of prime
plus one percent.

Accounts receivable and amounts due from factor consists of the following:

<TABLE>
<CAPTION>
                                                              December 31,
                                                       --------------------------
                                                           1996          1995
                                                       -----------    -----------
<S>                                                    <C>            <C>
Accounts Receivable - factor .......................   $ 3,897,563    $ 3,206,600
Borrowings from factor .............................    (3,649,628)      (881,024)
                                                       -----------    -----------

Net due from factor ................................       247,935      2,325,576
Accounts receivable - trade ........................       642,643        471,022
                                                       -----------    -----------

   Total accounts receivable .......................       890,578      2,796,598

Less: Accounts receivable allowances ...............      (603,000)    (1,017,000)
                                                       -----------    -----------

      Total accounts receivable, net
         of allowances .............................   $   287,578    $ 1,779,598
                                                       ===========    ===========
</TABLE>




                                      F-17


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5 - Accounts Receivable and Allowances: (continued)

The accounts receivable allowances consists of the following:

<TABLE>
<CAPTION>

                                               December 31,
                                         -----------------------
                                            1996         1995
                                         ----------   ----------
<S>                                      <C>          <C>
Returns, allowances and discounts ....   $  553,000   $  911,000
Doubtful accounts ....................       50,000      106,000
                                         ----------   ----------

          T o t a l ..................   $  603,000   $1,017,000
                                         ==========   ==========
</TABLE>


NOTE 6 - Inventories:

Inventories consist of the following:

<TABLE>
<CAPTION>

                                               December 31,
                                         -----------------------
                                            1996         1995
                                         ----------   ----------
<S>                                      <C>          <C>
Finished goods .......................   $2,758,085   $2,178,278
Material components and supplies .....    1,355,215    1,091,928
                                         ----------   ----------

         T o t a l ...................   $4,113,300   $3,270,206
                                         ==========   ==========
</TABLE>

NOTE 7 - Prepaid expenses and other current assets:

Prepaid expenses and other current assets consist of the following:

<TABLE>
<CAPTION>

                                               December 31,
                                         -----------------------
                                            1996         1995
                                         ----------   ----------
<S>                                      <C>          <C>
Prepaid Royalties ....................   $  288,881   $   85,837
Prepaid Insurance ....................      253,869      224,034
Other ................................      575,378      336,551
                                         ----------   ----------

         T o t a l ...................   $1,118,128   $  646,422
                                         ==========   ==========
</TABLE>







                                      F-18


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8 - Property and Equipment:

Property and equipment consists of the following:

                                                    December 31,
                                              -----------------------
                                                 1996         1995
                                              ----------   ----------
          Property and equipment at cost:

             Land. . . . . . . . . . . . . .  $  325,000   $  325,000
             Building. . . . . . . . . . . .     725,000      725,000
             Molds and tools . . . . . . . .   2,730,935    3,817,878
             Manufacturing equipment . . . .   1,698,038      797,401
             Furniture, fixtures and
               office equipment. . . . . . .   1,106,402      896,361
             Leasehold improvements. . . . .     373,654      291,756
                                              ----------   ----------

                                               6,959,029    6,853,396

             Less:
               Accumulated depreciation
                  and amortization . . . . .   3,454,561    4,199,694
                                              ----------   ----------

                       T o t a l . . . . . .  $3,504,468   $2,653,702
                                              ==========   ==========


NOTE 9 - Investment in Celt Specialty Partners, Inc.:

On April 23, 1995,  the Company  purchased the  remaining 50% joint  interest in
Celt.  The  accounts of Celt are  consolidated  with the Company from January 1,
1995.

Selected financial information of Celt for the period from May 10, 1994 (date of
inception) to December 31, 1994 are as follows:

<TABLE>
<S>                                                     <C>
        Revenue . . . . . . . . . . . . . . . . . . . . $1,231,229
        Net loss. . . . . . . . . . . . . . . . . . . .   (248,120)
</TABLE>




                                      F-19


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10 - Long-term Debt:

In November 1993, JTP acquired  approximately  5,899 square feet of office space
in Hong Kong.  The Company  financed approximately  $2,900,000  of the  purchase
price with a mortgage loan payable over a period of eight years at a fluctuating
interest  rate  equal to  the Hong Kong prime rate (at December 31, 1995 - 7.5%)
plus 1-1/4% per annum.  The  Company  guaranteed  the  obligation  of  JTP  with
respect to such mortgage loan.  The  net  book value of the property was written
down to $2,907,000 at December 31, 1995 to reflect the Company's estimate of the
carrying  value of the  property as of December 31,  1995,  and is  reflected as
property held for sale.

On March 22,  1996,  the  Company  executed an  agreement  to sell its Hong Kong
property,  which  closed  on April 30,  1996.  Proceeds  from the  sale,  net of
transaction costs, amounted to approximately $3,088,000,  and a portion of those
proceeds  were  used  to  repay  the long-term  mortgage loan  outstanding.  The
Company  presently leases smaller premises in Hong Kong.




                                      F-20


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - Related Party Transactions:

Administrative services:

A principal in RGA Accessories,  Inc.  ("RGA") is also an officer,  director and
shareholder of the Company. RGA has previously performed certain  administrative
services for the  Company.  Under an  agreement  dated in August  1992,  RGA was
compensated through December 31, 1995 on a formula based on the Company's sales.
Commencing in 1996,  the Company  began  assuming  internally  the functions and
services  previously  provided by RGA to the Company.  RGA  continued to provide
computer-related services during 1996. For such services, the Company paid RGA a
fixed monthly retainer.  The Company incurred approximately  $260,000,  $668,000
and $877,000 for such services in 1996, 1995 and 1994, respectively.

Yick Bo Trading Limited ("Yick Bo") performs certain administrative services for
JTP and JWE. The Company incurred approximately $123,000,  $293,000 and $217,000
for such  services  in 1996,  1995 and 1994,  respectively.  A  principal  and a
shareholder of Yick Bo is an officer, director and shareholder of the Company.

As of December 31, 1996, the Company  terminated its U.S. and Hong Kong services
with RGA and Yick Bo and will perform all of these services internally.

Warehouse rent and services:

The Company  leased space in a public  warehouse  from a partnership  in which a
shareholder,  officer and director of the Company is a general  partner.  Rental
and warehouse expenses for such premises was approximately $18,700, $113,100 and
$335,600 in 1996, 1995 and 1994, respectively.

Consulting fees:

During 1995 and 1994,  the  Company  incurred  expenses of $27,500 and  $80,000,
respectively, to a director for consulting fees.




                                      F-21


<PAGE>

                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - Accrued Liabilities:

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>

                                                    December 31,
                                              -----------------------
                                                 1996         1995
                                              ----------   ----------
<S>                                           <C>          <C>
          Royalties. . . . . . . . . . . . .  $  181,311   $  728,548
          Insurance. . . . . . . . . . . . .     160,654
          Other. . . . . . . . . . . . . . .     963,639      854,213
                                              ----------   ----------
                    T o t a l. . . . . . . .  $1,305,604   $1,582,761
                                              ==========   ==========
</TABLE>


NOTE 13 - Commitments, Contingencies and Other Matters:

License agreements:

The Company develops and produces certain products under license agreements with
third parties. The amounts paid periodically under the terms of these agreements
range from 2% to 16% of the net sales of the licensed  products.  The Company is
obligated for guaranteed  minimum royalty and other license payments at December
31, 1996 as follows:


<TABLE>
              <S>                                <C>
              1997. . . . . . . . . . . . . . .  $348,000
              1998. . . . . . . . . . . . . . .    95,000
              1999. . . . . . . . . . . . . . .     -0-
              2000. . . . . . . . . . . . . . .     -0-
              2001. . . . . . . . . . . . . . .   175,000
                                                 --------
                        T o t a l . . . . . . .  $618,000
                                                 ========

</TABLE>

                                      F-22




<PAGE>



                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - Commitments, Contingencies and Other Matters:  (continued)

Leases:

Minimum annual  rentals under leases  expiring at various times through the year
2008 for showroom,  merchandising  and  warehouse  facilities as at December 31,
1996 are as follows:

<TABLE>
          <S>                                  <C>
              1997. . . . . . . . . . . . . . .$  464,000
              1998. . . . . . . . . . . . . . .   234,000
              1999. . . . . . . . . . . . . . .   141,000
              2000. . . . . . . . . . . . . . .    86,000
              2001. . . . . . . . . . . . . . .   101,000
              Thereafter. . . . . . . . . . . .   617,000
                                                ---------
                        Total . . . . . . . . .$1,643,000
                                               =========
</TABLE>

Rent expense  approximated  $332,000,  $259,000 and $326,000 for 1996,  1995 and
1994, respectively.

Letters of credit:

As of December  31,  1996,  the Company had an  outstanding  letter of credit of
$75,000.

Litigation:

In  October  1995,  the  Company  settled  an  arbitration   proceeding  and  an
accompanying  lawsuit  brought  by the  former  Chairman  of the Board and Chief
Executive  Officer of the Company,  and the former President and Chief Operating
Officer of the  Company  seeking  damages  for lost  compensation  by payment of
$594,000 and the issuance of 120,000 shares of Series A Stock.




                                      F-23






<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - Commitments, Contingencies and Other Matters:  (continued)

Litigation:  (continued)

The Company received  approximately  1,000 complaints  concerning its Micro-Bake
for Kids'tm' (the "Micro-Bake")  product, all of which have been paid or accrued
for as of December  31, 1996 and 1995.  The Company  discontinued  selling  this
product in 1995. Virtually all of the complaints assert damage to the Micro-Bake
product and many complaints assert damage to the consumer's  microwave oven. The
Company has product liability  insurance related to this matter.  The Company is
expected  to be  responsible  for  approximately  50% of  such  claims  and  the
insurance company is expected to pay the balance.

In July 1996,  the United  States  District  Court for the Northern  District of
California  granted  summary  judgment  in favor of the  Company  and the  other
defendants in a lawsuit commenced in April 1995 by OddzOn Products,  Inc. Oddzon
Products,  Inc. alleged that the Company's Micro Ultra Pass'r' and Ultra Pass'r'
infringed a design patent allegedly owned by the plaintiff and constituted trade
dress  infringement and unfair  competition.  The Court's decision held that the
Company's  products do not infringe the  plaintiff's  rights in any way.  Oddzon
Products, Inc. has appealed that decision. The Company does not believe that its
products infringe any rights of the plaintiff, and the Company is contesting the
action.

Deferred compensation plan:

Effective January 1, 1993, the Company became a participating  employer with RGA
in a Deferred  Compensation  Plan (the "RGA Plan") which qualifies under Section
401(a) of the Internal Revenue Code.  Under the terms of the RGA Plan,  eligible
employees can defer up to 20% of their gross compensation  annually. The Company
may, but is not required to, make additional contributions in amounts authorized
by the Company's Board of Directors (subject to limitations).  Effective January
1, 1996, the Company  established a defined  contribution  plan (the "New Plan")
under Section 401(k) of the Internal Revenue Code. The New Plan replaces the RGA
Plan. All of the Company's  employee accounts from the RGA Plan were transferred
to the New Plan during 1996.  The Company has elected not to make  contributions
to these plans for the years ended December 31, 1996, 1995 and 1994.



                                      F-24






<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - Commitments, Contingencies and Other Matters:  (continued)

Concentration of credit risk:

The Company places its cash at various banking institutions and Milberg Factors,
Inc. At times,  such amounts might be in excess of the FDIC  insurance  limit at
the banking institutions. Amounts due from Milberg Factors, Inc. are not covered
by insurance.

NOTE 14 - Major Customers:

In each of the past three years,  the Company has had two  customers  which each
individually represented greater than 10% of net sales. Sales to these customers
totaled 57%, 53% and 44% of net sales in 1996, 1995 and 1994, respectively.  The
termination by either of these  customers of its  relationship  with the Company
would have a material adverse effect on the Company.

NOTE 15 - Income Taxes:

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>

                                         Year Ended December 31,
                                    ----------------------------------------
                                       1996        1995        1994
                                    ----------  ---------   ---------
<S>                                  <C>         <C>       <C>
   Federal:
          Current . . . . . . . . .  $    -      $    -
          Deferred. . . . . . . . .                         $ 190,600
        State and local:
          Current . . . . . . . . .
          Deferred. . . . . . . . .                            82,600
        Foreign:
          Current . . . . . . . . .                             2,012
          Deferred. . . . . . . . .
                                      ----------  ---------  --------
                 Total. . . . . . .  $    -      $    -     $ 275,212
                                      ==========  =========  ========
</TABLE>

Deferred  income  tax  expenses  arose  primarily  from  temporary   differences
associated with the following:

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ---------------------------------
                                         1996       1995       1994
                                     ----------  ---------- ---------
<S>                                  <C>         <C>        <C>
        Depreciation. . . . . . . .  $     -     $    -     $ 142,800
        Capitalization of
          inventory costs . . . . .                            58,400
        Estimated allowances. . . .                            72,000
                                      ----------  ---------  --------
                      Total . . . .  $     -     $    -     $ 273,200
                                      ==========  =========  ========
</TABLE>


                                      F-25







<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - Income Taxes:  (continued)

The tax effects of principal temporary differences and net operating losses are
as follows:

<TABLE>
<CAPTION>
                                      Year Ended December 31,
                                    ---------------------------
                                        1996           1995
                                    -----------    -----------
<S>                                <C>             <C>
     Asset:

        Estimated allowances. . .  $   254,000     $   430,000
        Capitalization of
          inventory . . . . . . .       48,000          37,000
        Net operating loss. . . .    3,300,000       3,400,000
                                    ----------      ----------
                                     3,602,000       3,867,000

     Liability:

        Depreciation. . . . . . .      (34,971)        (74,971)

        Valuation allowance
          for deferred taxes. . .   (3,583,000)     (3,808,000)
                                    ----------      ----------
            T o t a l.  . . . . .  $   (15,971)     $  (15,971)
                                    ==========      ==========
</TABLE>

The valuation allowance at December 31, 1994 was approximately $7,356,000.

The  differences  between the statutory  Federal  income tax rate of 34% and the
income taxes reported in the statements of operations are as follows:

<TABLE>
<CAPTION>

                                                  Year Ended December 31,
                                            ------------------------------------
                                              1996        1995          1994
                                            --------   -----------   -----------
<S>                                         <C>        <C>          <C>
         Income (loss) before income taxes:
             United States. . . . . . .     $ 25,936   $(6,495,630) $(15,430,290)
             Foreign. . . . . . . . . .      129,478    (2,291,294)      (90,030)
                                             -------    ----------   -----------

                                            $155,414   $(8,786,924) $(15,520,320)
                                             =======    ==========   ===========

         Statutory rate . . . . . . . .     $ 52,841   $(2,987,554) $ (5,276,909)
         Utilization of benefit of tax
           loss carryforward. . . . . .      (12,381)
         Loss from which no tax
           benefit was provided . . . .                  2,977,820     5,550,109
         Difference between U.S.
           Federal statutory rate and
           foreign effective rate . . .                                    2,012
         Foreign income not subject
           to tax . . . . . . . . . . .      (40,460)
         Other. . . . . . . . . . . . .                      9,734
                                             -------    ----------   -----------
             Total tax provision
             (benefit). . . . . . . . .    $   -0-      $    -0-     $   275,212
                                            ========    ==========   ===========
</TABLE>




                                      F-26







<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - Income Taxes:  (continued)

Undistributed foreign income:

At  December  31,  1996,  JTP  had   approximately   $600,000  of  undistributed
accumulated  earnings.  If the amounts were paid in the form of  dividends,  the
Company would apply this income against the net operating loss carryforwards.

Net operating loss:

The Company has a net operating loss  carryforward of approximately  $22,000,000
as at December 31, 1996.  Approximately $900,000 expires by 2008, $14,100,000 by
2009, $6,700,000 by 2010 and $300,000 by 2011. However, pursuant to  Section 382
of the Internal Revenue Code the future utilization of approximately $21,000,000
of  these  operating  loss  carryforwards  are   significantly  limited  due  to
ownership  changes.  Based on  management's estimates,  the annual limitation on
such net operating loss carryforwards is approximately $500,000.

NOTE 16 - Supplemental Cash Flow Information:

Payments for interest  expense  were  $384,114,  $234,901 and $232,169 for 1996,
1995 and 1994, respectively.



                                      F-27







<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - Stock Options:

Stock Option Plan

Effective   August  10,  1992,  the  Company  adopted  the  1992  Incentive  and
Non-Qualified Stock Option Plan (the "Plan"),  which will terminate on August 9,
2002. Under the terms of the Plan, options to purchase shares of common stock of
the Company intended to qualify as "incentive  stock options" and  non-qualified
stock  options  may be granted to  employees  and  directors  of the Company and
independent  contractors providing services to the Company. A total of 1,000,000
shares of Common  Stock are  issuable  under the Plan.  Options are  exercisable
within ten years of the date of grant.

Detail of stock options are as follows:

<TABLE>
<CAPTION>


                                                                     Weighted                           Weighted
                                                                     Average                            Average
                                                                     Exercise        Number of          Price per
                                                   Number of         Price per        Shares          Exercisable
                                                    Shares            Share         Exercisable           Share
                                                    ------            -----         -----------           -----

<S>                                               <C>              <C>             <C>               <C>
Balance - December 31, 1993. . .                    239,999           $12.94
Granted and repriced - 1994. . .                    371,497             5.69
Canceled - 1994. . . . . . . . .                   (222,999)          (11.28)
                                                   -------

Balance - December 31, 1994. . .                    388,497           $ 6.96           39,000            $10.90
                                                                                      =======
Granted - 1995 . . . . . . . . .                    234,000             2.35
Canceled - 1995. . . . . . . . .                   (171,250)           (6.40)
                                                   -------

Balance - December 31, 1995. . .                    451,247           $ 4.78          140,033            $ 6.56
                                                                                      =======
Granted - 1996 . . . . . . . . .                    171,000             1.89
Canceled - 1996. . . . . . . . .                    (59,900)           (2.78)
                                                   -------

Balance - December 31, 1996. . .                    562,347           $ 4.11          206,298            $ 5.92
                                                   ========                           =======
</TABLE>

The exercise price of options outstanding at December 31, 1996 ranged from $1.25
to $14.125.

The Company has not recorded a charge for financial  reporting  purposes for the
issuance  and  repricing  of the above stock  options  because the options  were
issued or repriced at exercise prices equal to or greater than the fair value of
the Company's common stock or the difference  between the exercise price and the
fair value was immaterial.



                                      F-28






<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 17 - Stock Options: (continued)

Other

Pursuant  to an  agreement  between an officer of the Company and the Company in
December  1996, the Company  granted the officer a fully vested and  exercisable
ten year option to purchase up to 50,000  shares of Common  Stock at an exercise
price of $1.50  per  share,  the  market  price of the  stock at the time of the
grant. The Company has agreed to grant to the officer an additional fully vested
and  exercisable  ten year option to purchase up to 50,000  shares of the Common
Stock on June 30,  1997 at an exercise  price equal to the closing  price of the
Common Stock on the Nasdaq Stock Market on such date. Neither of such options is
governed by the Company's Plan and are subject to stockholder approval.  Both of
such  options  will  remain  outstanding  for their full term  until  exercised,
whether or not the officer is still affiliated with the Company.

Pro forma information  regarding net loss and loss per share is required by SFAS
123, and has been  determined  as if the Company had  accounted for its employee
stock options under the fair value of SFAS 123. The fair value for these options
was estimated at the date of grant using a  Black-Scholes  option  pricing model
with the following weighted-average assumptions for 1996 and 1995:

<TABLE>
<CAPTION>

                                          1996          1995
                                          ----          ----
<S>                                       <C>             <C>
 Risk free rate. . . . . . . . . . . .    6.58%           6.58%
 Dividend yield. . . . . . . . . . . .      0%              0%
 Volatility factor of the expected
   price of the Company's Common Stock    1.051           1.051
 Average life (years). . . . . . . . .      5               5
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected  stock  volatility.  Because the
Company's employee stock options have  characteristics  significantly  different
from  those of traded  options,  and  because  changes in the  subjective  input
assumptions  can  materially  affect the fair value  estimate,  in  management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.


                                      F-29






<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17 - Stock Options: (continued)

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the vesting  period of the options.  The  Company's
pro forma information is as follows:

<TABLE>
<CAPTION>
                                          1996         1995
                                          ----         ----
<S>                                     <C>        <C>
 Pro forma net loss
   attributable to common
   stockholders. . . . . . . . . . . .  $(12,250)  $(8,813,226)

 Pro forma net loss
   per share attributable to
   common stockholders . . . . . . . .  $   -      $  (2.12)
</TABLE>

The  weighted  average  fair value of  options  granted  during the years  ended
December   31,   1996  and  1995  were  $1.19  and  $1.26,   respectively.   The
weighted-average remaining contractual life of those options is 9.2 years.

As of December 31, 1996,  1,908,243  shares of the  Company's  Common Stock were
reserved  for  issuance on the  exercise of stock  options and  warrants and the
redemption of preferred stock.

NOTE 18 - Warrants:

In connection  with a public  offering of the Company's  Common Stock in October
1992, the Company sold warrants to its  underwriters  for $100 to purchase up to
100,000  shares of common  stock,  exercisable  for a period of four  years from
October 1, 1993 through October 1, 1997 at $12.60 per share. On January 1, 1996,
the Company issued warrants to its investment  banker to purchase 100,000 shares
of common  stock at $3.625 per share,  which  expire on December  31,  2000.  In
connection  with the  acquisition  of the assets of Table  Toys,  warrants  were
issued to various  individuals  to  purchase  60,000  shares of common  stock at
$3.625 per share, which expire on June 26, 2001.



                                      F-30





<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 19 - Business Segments:

Foreign  operations  and  sales  for the year  ended  December  31,  1996 are as
follows:

<TABLE>
<CAPTION>

                    United
                    States      Hong Kong*  Eliminations Consolidated
                  ------------  ----------  ------------ ------------
<S>               <C>           <C>          <C>          <C>
Net sales. . . .  $16,624,657   $5,431,127                $22,055,784
                   ==========    =========                 ==========

Operating income  $   226,720   $  213,595                $   440,315
                   ==========    =========
Interest expense                                             (545,800)
Interest and
  dividend income                                              12,927
Other income . .                                              247,972
                                                           ----------
Income before
  income taxes .                                          $   155,414
                                                           ==========
Identifiable
  assets at
  December 31,
  1996 . . . . .  $ 9,912,752   $1,012,088  $(1,092,456)  $ 9,832,414
                   ==========    =========   ==========
Corporate assets                                              153,707
                                                           ----------
Total assets . .                                          $ 9,986,121
                                                           ==========
</TABLE>

*    Hong Kong includes approximately  $4,336,000 of net sales F.O.B. Hong Kong,
     which may have been  shipped to  customers  in the United  States and other
     destinations.




                                      F-31






<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 19 - Business Segments:  (continued)

Foreign  operations  and  sales  for the year  ended  December  31,  1995 are as
follows:

<TABLE>
<CAPTION>

                    United
                    States      Hong Kong*  Eliminations Consolidated
                   ----------   ---------   ------------ ------------
<S>               <C>           <C>        <C>          <C>
Net sales. . . .  $14,815,984   $4,772,364                $19,588,348
                   ==========    =========                 ==========

Operating (loss)  $(5,608,218)  $ (457,978)               $(6,066,196)
                   ==========    =========
Interest expense                                             (357,562)
Interest and
  dividend income                                             141,440
Write-down of
  investment in
  Hong Kong
  property . . .                                           (1,578,000)
Settlement of
  arbitration &
  related legal
  expenses . . .                                             (909,594)
Other expense. .                                              (17,012)
                                                           -----------
(Loss) before
  income taxes .                                          $(8,786,924)
                                                           ===========
Identifiable
  assets at
  December 31,
  1995 . . . . .  $ 8,822,249   $4,031,835  $(1,272,169)  $11,581,915
                   ==========    =========   ==========
Corporate assets                                              241,443
                                                           ----------
Total assets . .                                          $11,823,358
                                                           ==========
</TABLE>

*    Hong Kong includes approximately  $4,000,000 of net sales F.O.B. Hong Kong,
     which may have been  shipped to  customers  in the United  States and other
     destinations.


                                      F-32







<PAGE>


                        JUST TOYS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 19 - Business Segments:  (continued)

Foreign  operations  and  sales  for the year  ended  December  31,  1994 are as
follows:

<TABLE>
<CAPTION>

                    United
                    States      Hong Kong*  Eliminations Consolidated
                  -----------   ----------  ------------ ------------
<S>              <C>            <C>         <C>           <C>
Net sales. . . . $ 14,620,250   $9,254,786               $ 23,875,036
                  ===========    =========                ===========
Operating (loss)
  income . . . . $(15,570,333)  $   80,984               $(15,489,349)
                  ===========    =========
Interest expense                                             (284,652)
Interest and
  dividend income                                             467,379
Other expense. .                                             (213,698)
                                                          -----------

(Loss) before
  income taxes .                                         $(15,520,320)
                                                          ===========
Identifiable
  assets at
  December 31,
  1994 . . . . . $ 10,808,173   $6,159,388    $(611,539) $ 16,356,022
                  ===========    =========     ========
Corporate assets                                            6,683,758
                                                          -----------

Total assets . .                                         $ 23,039,780
                                                          ===========
</TABLE>

*    Hong Kong includes approximately  $7,089,000 of net sales F.O.B. Hong Kong,
     which may have been  shipped to  customers  in the United  States and other
     destinations.

                                      F-33




<PAGE>


                                                                     SCHEDULE II

                        JUST TOYS, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
             Column A                                    Column B                Column C                 Column D        Column E
------------------------------------------------------------------------------------------------------------------------------------
                                                                                Additions
                                                                        ---------------------------
                                                                           (1)             (2)
                                                                                        Charged to
                                                         Balance at      Charged to       Other                          Balance at
                                                         Beginning       Costs and      Accounts -       Deductions-      End of
                                                          of Period       Expenses       Describe         Describe        Period
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>             <C>             <C>             <C>             <C>
Year ended December 31, 1996:
   Allowance for doubtful accounts ................      $  106,000      $    4,875                      $   60,875      $   50,000
   Allowance for sales returns, discounts and
     allowances ...................................         911,000         847,461                       1,205,461         553,000
                                                         ----------      ----------                      ----------      ----------

          T o t a l ...............................      $1,017,000      $  852,336                      $1,266,336      $  603,000
                                                         ==========      ==========                      ==========      ==========

Year ended December 31, 1995:
   Allowance for doubtful accounts ................      $  152,000      $   28,218                      $   74,218      $  106,000
   Allowance for sales returns, discounts and
     allowances ...................................       1,055,000         784,469                         928,469         911,000
                                                         ----------      ----------                      ----------      ----------

          T o t a l ...............................      $1,207,000      $  812,687                      $1,002,687      $1,017,000
                                                         ==========      ==========                      ==========      ==========

Year ended December 31, 1994:
   Allowance for doubtful accounts ................      $  112,000      $  117,331                      $   77,331      $  152,000
   Allowance for sales returns, discounts and
     allowances ...................................         846,000       4,922,490      $  286,023       4,999,513       1,055,000
                                                         ----------      ----------      ----------      ----------      ----------

          T o t a l ...............................      $  958,000      $5,039,821      $  286,023      $5,076,844      $1,207,000
                                                         ==========      ==========      ==========      ==========      ==========

</TABLE>

(1) Write off of uncollectibles and sales returns, discounts and allowances.

(2) Selling expense related to returned merchandise.


                          STATEMENT OF DIFFERENCES

The registered trademark symbol shall be expressed as .................   'r'


                                      F-34