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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K



|  |                                               
|- | ----------------------------------------------
|x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended March 31,
2002

or



|  |                                                         
|- | --------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES ACT OF 1934


Commission File Number: 0-23215



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Toymax International, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 11-3391335                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

22619 Pacific Coast Highway

Malibu, California 90265


(Address, including zip code, of principal
executive offices)


(310) 456-7799

(Registrants telephone number, including
area code)


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

None


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.     (1) Yes x          No o          (2) Yes x          No o

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 amendment to this
Form 10-K.     x

The aggregate market value of the voting stock
held by non-affiliates of the registrant as of June 18,
2002 was $17,681,845. The calculation does not reflect a
determination that persons are affiliates for any other purposes.

Number of shares of common stock outstanding as
of June 18, 2002: 12,316,386.

DOCUMENTS INCORPORATED BY REFERENCE:

None



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TABLE OF CONTENTS



|                                                                                  |                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                           
|                                                                                  | Item 1. Business                                                                             
|                                                                                  | Item 2. Properties                                                                           
|                                                                                  | Item 3. Legal Proceedings                                                                    
|                                                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                                                          
|                                                                                  | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|                                                                                  | Item 6. Selected Consolidated Financial Data                                                 
|                                                                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                  | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                                                  | Item 8. Financial Statements and Supplementary Data                                          
|                                                                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                                                         
|                                                                                  | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                                                  | Item 11. Executive Compensation                                                              
|                                                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                                                  | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                                                          
|                                                                                  | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                                                       
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                               
|CONSOLIDATED BALANCE SHEETS                                                      
|TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000, 2001 and 2002         
|Exhibit 23.1                                                                     



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TOYMAX INTERNATIONAL, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

Filed with the Securities and Exchange
Commission


For the Fiscal Year Ended March 31,
2002


ITEMS IN FORM 10-K

|         |  |                                                                                           |  |      |    | 
|-------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                           |  | Page
|         |  |                                                                                           |  |     
|PART I  
|Item 1.  |  | Business                                                                                  |  |      | 1  | 
|Item 2.  |  | Properties                                                                                |  |      | 9  | 
|Item 3.  |  | Legal Proceedings                                                                         |  |      | 9  | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                   |  |      | 9  | 
|PART II 
|Item 5.  |  | Market for the Registrants Common Equity
    and Related Stockholder Matters             |  |      | 10 | 
|Item 6.  |  | Selected Consolidated Financial Data                                                      |  |      | 11 | 
|Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |      | 11 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |  |      | 17 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                               |  |      | 18 | 
|Item 9.  |  | Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure  |  |      | 18 | 
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                        |  |      | 18 | 
|Item 11. |  | Executive Compensation                                                                    |  |      | 20 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  |      | 20 | 
|Item 13. |  | Certain Relationships and Related Transactions                                            |  |      | 20 | 
|PART IV 
|Item 14. |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                      |  |      | 21 | 
|         |  | Signatures                                                                                |  |      | 24 | 

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DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS

This report includes forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. For example, statements included in this
report regarding our financial position, business strategy and
other plans and objectives for future operations, and
assumptions and predictions about future product demand, supply,
manufacturing, costs, marketing and pricing factors are all
forward-looking statements. When we use words like
intend, anticipate, believe,
estimate, plan or expect, we
are making forward-looking statements. We believe that the
assumptions and expectations reflected in such forward-looking
statements are reasonable, based on information available to us
on the date hereof, but we cannot assure you that these
assumptions and expectations will prove to have been correct or
that we will take any action that we may presently be planning.
We have disclosed certain important factors that could cause our
actual results to differ materially from our current
expectations elsewhere in this report. You should understand
that forward-looking statements made in this report are
necessarily qualified by these factors. We are not undertaking
to publicly update or revise any forward-looking statement if we
obtain new information or upon the occurrence of future events
or otherwise.




PART I

In this report, Toymax, the
Company, we, us, and
our refer to Toymax International, Inc. and its
subsidiaries.




Item
1.     Business

Company Overview

Toymax is a consumer leisure products company
that creates, designs and markets innovative and technologically
advanced toys as well as other leisure products, which are sold
in the United States and throughout the world. Toymax products
promote fun and creative play, and are available under several
brands: Toymax® toys, such as
R.A.D.TMRobot, Mighty
MosTM vehicles, the award-winning Laser
ChallengeTM brand, Creepy
CrawlersTM activities brand and TMX
RCTM radio control vehicles;
Funnoodle® pool and water toys and accessories; and
Go Fly a Kite® kites, banners,
WindWheelsTM, weathervanes and wind chimes.
Management believes that the major strengths of Toymax include
its ability to develop and design new toys, such as Singing
StarzTMVideo Karaoke; to identify and
satisfy niche opportunities with brands such as Mighty
Mos; to extend existing core brands such as Laser
Challenge; and to identify acquisitions, such as Go Fly A Kite,
Inc. (GFK), and Funnoodle Inc.
(Funnoodle), that further its plan to diversify into
other leisure product categories and selling seasons.

In 1998, we began to take a number of important
steps designed to better position us for future and balanced
growth through the diversification of our product line. In
December 1998, we acquired the business of Go Fly A Kite,
Inc., a leading developer and marketer of kites, windsocks,
banners, mini flags and WindWheelsTM. In November
1999, we completed the acquisition of the Funnoodle product
line. Funnoodle Inc. is a leader in the pool and backyard water
recreational products categories.

Effective November 30, 2001, we sold the net
assets of Monogram International, Inc., Monogram Products
(H.K.) Limited and our Candy Plant division to an entity
controlled by David Chu, the former Chairman of our board of
directors.

On March 11, 2002, pursuant to a stock
purchase agreement dated February 10, 2002, certain of our
principal stockholders sold 8,100,065 shares of our common stock
to JAKKS Pacific, Inc. (JAKKS), a designer,
developer, producer and marketer of toys and related products
for approximately $24.3 million in cash and
646,384 shares of JAKKS common stock. As a result of this
transaction and prior open market purchases of our common stock
by JAKKS, as of June 30, 2002, JAKKS owns 8,232,819 shares
of our common stock, representing approximately 66.8% of the
outstanding shares of our common stock.

In connection with the above described stock
purchase agreement, on February 10, 2002, we entered into
an agreement of merger with JAKKS, pursuant to which JAKKS
intends to purchase the remaining

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outstanding shares of our common stock in a
merger transaction for consideration of approximately
$12.3 million and 325,853 shares of JAKKS common stock.


On May 21, 2002, We and JAKKS filed a joint
proxy statement/ prospectus with the Securities and Exchange
Commission on Form S-4 in connection with the proposed
merger with JAKKS. Upon the consummation of the merger, we will
become a wholly owned subsidiary of JAKKS and will become a
privately held corporation with no public market for our common
stock. In addition, once the merger with JAKKS is completed, we
will no longer be required to file periodic reports with the
Securities and Exchange Commission.

We have incurred losses for the past three fiscal
years. For the year ended March 31, 2002, we had net sales
of $94.9 million and a pre-tax loss from continuing
operations of $12.3 million, excluding restructuring
charges of $15.6 million, compared to a pre-tax loss from
continuing operations of $1.1 million in fiscal 2001. The
restructuring charges relate to the acquisition by JAKKS of
66.8% of our outstanding common stock, pursuant to which we were
reorganized. The restructuring charges include the write-off of
assets that will not be utilized by the combined companies, the
accrual of certain fees for the early terminations of certain
agreements, severance payments and a one time charge for the
changing of the terms of our stock options.

Our Internet address is www.toymax.com, which
provides information about us and our products. The site also
contains games, information about where to purchase our
products, a strictly monitored kids chat area and hotlinks
to affiliated web sites, such as those of licensors, industry
related parties and financial institutions. Our GFK affiliate
has a separate Internet address at www.goflyakite.com.

Industry and Competition

We compete in several industries, with toys
representing the largest portion. The majority of the toys sold
in the United States are manufactured, either in whole or in
part, overseas where labor rates are comparatively lower than in
the United States. The largest foreign manufacturing market is
the Peoples Republic of China (China),
followed by Japan and Taiwan. Such operations require greater
lead times than domestic manufacturing operations and also
result in greater shipping costs, particularly for larger toys.
The design, production and sale of toy products in the United
States and throughout most of the world are subject to various
regulations.

Toy manufacturers sell their products either
directly to retailers or to wholesalers who carry the product
lines of many manufacturers. There are thousands of retail
outlets in the United States which sell toys and games. These
outlets include: mass merchandisers, small independent toy
stores, gift and novelty shops, grocery and drug chains,
warehouse clubs, e-retailers and mail order catalogs. Despite
the broad number of toy outlets, retail toy sales have been
increasingly generated by a small number of large chains, such
as Toys R Us, Wal-Mart, Kay-Bee, Kmart and Target.
Despite this consolidation in recent years, both at the retail
and manufacturing level, many small and mid-sized companies
continue to compete in the design and development of new toys,
the procurement of licenses, the improvement and expansion of
previously introduced products and product lines and the
marketing and distribution of toy products. This has resulted in
an increased reliance among retailers on the large toy companies
because of their financial stability and ability to support
products through advertising and promotion and to distribute
products on a national basis. Such consolidation may have a
negative effect on small and mid-sized toy companies, such as
Toymax.

The toy industry is highly competitive.
Competition within the industry is based on consumer
preferences, order fulfillment, pricing and new product
development. In recent years, the toy industry has experienced
rapid consolidation. We compete with many toy companies that
have greater financial resources, greater name recognition,
larger sales, marketing and product development departments and
greater economies of scale. Due to the low barriers to entry
into the toy industry, we also compete with smaller domestic and
foreign toy manufacturers, importers and marketers.

We chose to expand into new leisure product
categories in order to decrease reliance on the highly
competitive toy industry. In this regard we acquired GFK and
Funnoodle.

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GFK competes in the kite, flag/windsock and lawn
ornament markets in which it is estimated to have a large share.
There are numerous specialty kite manufacturers, which are
characterized by very small volume and higher pricing, and
several larger companies distributing banners and lawn
ornaments. Funnoodle competes primarily in the water and pool
toy market, in which it is a leader.

Seasonality and Backlog

Sales of toy products are seasonal, with the
majority of retail sales occurring in the third and fourth
calendar quarters. We have taken steps to reduce our dependence
on these highly seasonal products, including the acquisitions of
GFK and Funnoodle, which are largely sold in the first and
second calendar quarters. While we have taken these steps to
level sales over the entire year, sales are expected to remain
heavily influenced by the seasonality of our toy products.

The result of these seasonal patterns is that
operating results and demand for working capital vary
significantly by quarter and net losses may be expected in the
first and last quarters of the fiscal year for the foreseeable
future. Orders placed with us for shipment are cancelable until
the date of shipment. The combination of seasonal demand and the
potential for order cancellation makes accurate forecasting of
future sales difficult and causes us to believe that backlog may
not be an accurate indicator of our future sales. Similarly,
financial results for a particular quarter may not be indicative
of results for the entire year.

Products

Our existing product lines and calendar 2002
product introductions and extensions fall into six categories:
Action Toys, Spring/ Summer, Childrens Activity Toys,
Girls Toys, Vehicles and Electronics.



| |            
| | -----------
| | Action Toys

The Laser Challenge brand was introduced
in 1996, and continues to be the top-selling laser game. The
Laser Challenge system uses an advanced infrared light
technology, which is effective at longer firing distances than
competing systems. We continue to redesign and extend the
Laser Challenge brand, a strategy which supports our
expectation that Laser Challenge will be marketed over a
long period of time. In fiscal 2002, we introduced Laser
Challenge Gotcha Extreme Mini MayhemTM, a compact
sized version of the Extreme segment first introduced in 2000 as
Gotcha ExtremeTM and extended in 2001 as
Radar ExtremeTM. In fiscal 2002, we launched
Virtual PaintballTM, which combines the
technology and proven play pattern of Laser Challenge
with the excitement of paintball, one of the fastest growing
alternative sports in the United States.



| |              
| | -------------
| | Spring/Summer

We entered the Spring/ Summer seasonal business
in fiscal 1999 with the acquisition of GFK, whose product line
includes youth and adult kites and a wide array of decorative
flags, windsocks, door banners, mini flags and the WindWheels
line of colorful lawn ornaments. In fiscal 2001, a series of
kites designed by Joel K. Scholz, a renowned designer, was added
to the GFK product line. In addition, the lawn ornament line was
expanded to include weathervanes and wind chimes. In fiscal
2000, we expanded our seasonal offerings in this category with
the acquisition of the Funnoodle product line. Funnoodle is a
highly recognized brand of pool and recreational products. The
product lines most visible item, the basic Funnoodle, is a
5-foot long, brightly colored, floating foam tube that has been
one of the best selling summer toys in the United States since
its introduction in 1994. The Funnoodle product line continues
to be expanded with the introduction of products such as pool
floats, swim rings, lawn sprinklers, and tumbling and exercise
mats.



| |                         
| | ------------------------
| | Childrens Activity Toys

We have historically been a significant factor in
Childrens Activity Toys and reestablished ourself in
fiscal 2001 with the successful re-introduction of the Creepy
Crawlers® brand. We extended the brand in fiscal 2002 to
include Creeple People® and Graveyard
GhouliesTMCreator Paks®, which are
mold and play sets. In fiscal 2002, we re-introduced the
DollymakerTMFashion Maker consisting
of a molding oven, molds and

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Glamour-Goop TM compound whereby girls can design and make mini dolls and
fashions in an endless variety of designs and colors.




| |            
| | -----------
| | Girls Toys

Our Girls Toys product line includes the
Beauty WorksTM brand of role play activities
such as Nail Salon and Fragrance
DesignerTM; the Jam RopeTM, a
musical jump rope; and the Talking Tina® brand of
fashion dolls and soft furniture which fits any
11 1/2 fashion doll.



| |         
| | --------
| | Vehicles

We introduced the Mighty
MosTM brand of innovative vehicles late in
fiscal 1998. The first product utilized an infrared key
chain controller to activate these light, sound and motion
vehicles and is marketed in our patented try me
package. In fiscal 2000, the Mighty Mos Infrared
Vehicles category was extended to include specialty vehicles
with unique, stunt actions; this line expanded in fiscal 2002 to
include a rollover car and a wheelie quad. The Mighty
Mosbrand also includes monster trucks and a line of
flywheel powered endurance vehicles. We currently have license
arrangements to produce Mighty Mos versions of
Chevrolet, Jeep, Dodge, Mercedes, BMW, Porsche, Audi,
Porsche, Humvee and Ford styles.

Mighty Mos
Jr., the pre-school segment of our
vehicle business, is a line of products with moving eyes and
mouth, and speech and motion capabilities. This segment includes
Preston PushbuttonTM, a battery operated
programmable robot which walks, talks and has light-up eyes and
mouth; Denny the Dump TruckTM and Dougie
Chug-AlongTM, which are infrared remote control
vehicles; and Rick and Robbie RacersTM, which
are infrared remote vehicles which interact with each other as
they race.



| |            
| | -----------
| | Electronics

We continue to successfully manage our key brands
in this category while expanding our popular T.V. games line of
palm sized controllers that plug directly into a television set
and includes 10 classic video games licensed from Activision.
The controller is completely portable and does not require a
console. Additionally in the current fiscal year, we have
introduced Singing StarzTMVideo
Karaoke, the first home karaoke player with a built in video
camera that puts you on the television screen.

Product Design and Development

We have built a knowledgeable in-house product
development team and a network of independent designers to
create new products. Employees in the Marketing and Research and
Development departments coordinate efforts to design and develop
the majority of our toy and innovative new product lines.
Current technologies have been utilized to redesign, redevelop
and extend major brands and products from the past,
E.G. Creepy Crawlers and Popples. GFK strives
to maintain a product line that displays cutting edge graphics
and reflects current cultural trends. Funnoodle has sought to
develop new products largely by applying extruded foam
manufacturing techniques and designs to traditionally successful
products. Our success is dependent on our ability to continue
these activities. Our sponsored research and development
expenses for fiscal 2000, 2001 and 2002 were $4.2 million,
$3.4 million and $3.7 million, respectively.

We continually evaluate new product ideas
generated by a number of outside designers to maintain access to
a wide range of development talent. When a product is developed
based on the idea presented by an independent designer, we
typically enter into a royalty agreement with the designer.

Licensing

Licensing is a major influence on the leisure
products industry affecting virtually all product categories.
Although historically we have not significantly relied on
entertainment-related licenses, we have marketed and continue to
market products based on licensed popular characters and
trademarks from major entertainment companies and other widely
known corporate trademarks. This allows us to benefit from
pre-existing awareness of a character or brand and from the
marketing efforts and prior goodwill attached to it. A principal

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licensor is Activision©, as well as
many of the worlds leading auto makers for use of their
most popular model names on our Mighty Mos vehicle
line.


In return for the use of the licensed character
or brand name, we typically pay licensing fees based upon net
sales from products marketed under the subject license.
Furthermore, the acquisition of a license generally involves the
payment of non-refundable minimum royalty payments.

Sales and Distribution

We operate in two reporting segments:
(i) Toymax Brands (primarily consisting of sales activities
conducted through Toymax Inc. (TMI); and
(ii) Toymax (H.K.) Limited (THK) and Toymax
Enterprises (consisting of GFK and Funnoodle).

Sales conducted by TMI consist of sales of our
promotional product lines to primarily United
States customers pursuant to customer purchase orders.
Customers purchasing products on this basis include
Toys R Us, Kay-Bee Toys, Costco Wholesale,
Wal-Mart Stores, Inc., and Target Stores, Inc. Sales conducted
by THK consist of sales on a free on board (FOB)
Hong Kong basis which are generally based on letters of credit,
and include sales of primarily lower priced basic products to
the United States and international retailers including
Toys R Us International, Index (U.K.),
Wal-Mart (Canada) and sales of our promotional product lines to
approximately 50 international distributors.

Funnoodle and GFK sales are made primarily to
United States customers, on standard credit terms, pursuant to
customer purchase orders. Sales conducted by GFK are on a COD,
prepaid or credit card basis for those customers who do not
qualify for credit terms. Extended credit terms are periodically
offered to qualifying customers. To a lesser extent, the GFK
operations sell to customers internationally. These
international customers generally purchase products utilizing a
direct letter of credit and shipments are made directly from the
overseas factory on a FOB Hong Kong basis.

Our products are sold in over 45 countries around
the world. The following table depicts our net sales in these
two segments for the last three fiscal years:

Sales

|                   |  |                |         |      |  |      |         |  |  |   |        | 
|------------------ |  | -------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------ | 
|                   |  |               
|                   |  | Fiscal Year   
|                   |  |               
|                   |  | 2000           |         | 2001 |  | 2002
|                   |  |                |         |      |  |     
|                   |  |               
|                   |  | (In thousands)
|Toymax Brands      |  | $              | 91,062  |      |  | $    | 85,496  |  |  | $ | 65,568 | 
|Toymax Enterprises |  |                | 18,803  |      |  |      | 29,655  |  |  |   | 29,284 | 
|                   |  |                |         |      |  |      |         |  |  |   |        | 
|Net Sales          |  | $              | 109,865 |      |  | $    | 115,151 |  |  | $ | 94,852 | 
|                   |  |                |         |      |  |      |         |  |  |   |        | 

Toymax Brands Sales.This segments United States sales activities are conducted
through its nationwide network of independent sales
representatives, an in-house sales staff and, with respect to
certain major accounts, by senior management. Comprised of more
than 50 sales executives and 14 sales organizations at
March 31, 2002, this sales network maintains close customer
relationships, develops new accounts and presents new products
to its established customers. Our leading United States
customers (not including THK sales to the United States) include
major toy retailers, mass merchandisers, department stores and
catalog companies. TMI sales constituted 55.3%, 41.0% and 37.5%
of consolidated net sales in fiscal 2000, 2001 and 2002,
respectively.

THK sales are comprised of sales to international
retailers and distributors and to certain United States
retailers. Such sales are conducted on a FOB Hong Kong basis and
generally require either the opening of a letter of credit or
are backed by credit insurance. Since our inception in 1990, we
have emphasized international sales, and today our products are
sold in over 50 countries worldwide. Our international
sales network consists of approximately 50 international
distributors and 11 international sales representative
organizations. In fiscal 2000, 2001 and 2002, Toymax HK sales
accounted for 27.5%, 26.3% and 31.6% of net sales, respectively.

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Toymax Enterprises
Sales.GFK sales are comprised
primarily of sales to kite stores, hobby stores, gift, specialty
and bookstores and toy stores. Products are also distributed by
mail order catalogs, such as L.L. Bean, sporting goods
stores, and other mass-market retailers. In addition to our
in-house sales and customer service staff, GFK employs a network
of 96 independent sales representatives. GFK products are
currently sold to over 20,000 customers.

Funnoodle products were sold through the in-house
sales staff of the prior owner under a servicing agreement and a
network of sales representative organizations primarily to the
largest mass-market chains in the United States The servicing
agreement terminated effective August 2001, and, thereafter,
such activities have been performed by our personnel.
Historically, domestic sales have accounted for substantially
all of Funnoodles sales.

Customers

Only Toys R Us and WalMart each
accounted for more than 10% of invoiced sales during fiscal 2002.

Marketing

We employ a variety of methods to market our new
and existing products. New toys, existing toys and line
extensions are marketed primarily by members of our executive
and sales management at our showrooms in Hong Kong, New York and
Dallas during major international toy shows. We are also
represented at additional toy and kite shows both domestically
and internationally.

Product packaging and placement is a large part
of our overall marketing strategy. Our products are sold in
brightly colored, eye-catching packages with strong brand
identity. All packaging must meet strict guidelines for
communication effectiveness and for the ability to stand out
from the competitive clutter. We utilize try me
packaging whenever possible. We also employ traditional
marketing methods such as couponing, in-store demonstrations
adjacent to our toy products, and public relations.

We currently allocate a significant portion of
our marketing resources to television advertising, which we
believe is the most cost-effective way to reach our primary
target audience of children. The commercials are run on national
television and in local spot television markets to support the
promotional efforts and distribution patterns of our key
retailers. We use other media, such as print and on-line
advertising, when appropriate.

Our GFK subsidiary primarily markets its products
through its annual catalogs. GFKs and Funnoodles
other marketing channels include trade shows, seasonal
brochures, advertisements in trade magazines, personal sales
calls, co-op advertising and telemarketing.

Purchasing and Manufacturing

TMI and THK currently contract for all of their
manufacturing requirements. We believe that this practice
provides us with the most efficient use of our capital at this
time. Tai Nam Industrial Company Limited (Tai Nam),
which is based in Hong Kong, served as our purchasing agent for
our core toy business pursuant to an agency agreement (the
Agency Agreement) which terminated March 11,
2002, between Tai Nam and Toymax NY. Tai Nam is owned by David
Chu, our former Chairman and principal stockholder. As our
purchasing agent, Tai Nam arranged for the manufacturing of our
products based on purchase orders placed with Tai Nam by us. In
addition, Tai Nam handled all shipping documents, letters of
credit, bills and payments, served as liaison with other vendors
and performed quality control functions. For these services, Tai
Nam generally received an agency fee of 7% of the gross invoiced
value of products purchased by us. Pursuant to the Agency
Agreement, we purchase products from Tai Nam at Yantian
(China) FOB prices. We paid all expenses associated with
the making of molds for new products. Pursuant to the Agency
Agreement, we owned the tooling and molds for our products.
Effective March 12, 2002, we perform these functions
directly.

As purchasing agent, Tai Nam arranged for the
manufacturing of our toy products based on purchase orders
placed with Tai Nam by us. The majority of such products have
been and are currently manufactured by Jauntiway Investments
Limited (Jauntiway). Jauntiway is an OEM toy
manufacturer with two ISO

6



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certified manufacturing facilities in the
southern portion of China. Jauntiway is also owned by
Mr. Chu. Since our inception, Jauntiway has been our single
most important manufacturer and we have been Jauntiways
leading customer. In fiscal 2001 and 2002, approximately 60% and
56%, respectively, of all our products were manufactured by
Jauntiway (some utilizing subcontractors). We entered into a
manufacturing agreement with Tai Nam and Jauntiway dated
September 22, 1997. Effective March 11, 2002, this
agreement was terminated and replaced by a new three-year
agreement with standard manufacturing terms.


Manufacturing commitments are made on a purchase
order basis. We base our production schedules on customer
estimates and orders, historical trends, the results of market
research and current market information. We closely monitor
market activity and adjust production schedules accordingly. We
utilize Electronic Data Interchange programs maintained by
certain of our largest customers, which allows us to monitor
actual store sales and inventories, and thereby to schedule our
production to meet anticipated re-orders.

Jauntiway also obtains products or components
from other independent manufacturers located principally in the
southern portion of China, particularly during peak production
periods. These suppliers are selected based on the quality of
their products, prices and service.

The basic raw materials used by Jauntiway in
manufacturing our toy products are petrochemical resin
derivatives. Integrated circuits have also become an important
component of our technologically advanced toys. Costs of
petrochemical derivatives and integrated circuits are affected
by demand and supply as well as the value of the United
States dollar in relation to foreign currencies, and have
been subject to volatility in recent years. There can be no
assurance as to the timing or extent to which we will be able to
pass on any raw material or component price increases to our
customers.

In addition, a large portion of Jauntiways
petrochemical derivates and integrated circuits are imported
from Taiwan via Hong Kong. Any disruption of trade between
Taiwan and China may have a significant adverse effect on
Jauntiways operations and, therefore, could have a
significant adverse effect on our results of operations.

GFK utilizes four manufacturers, three in China
and one in Taiwan, to make approximately 85% of its products,
based upon its product specifications. Tai Nam acted as its
agent in Hong Kong for all products produced in China pursuant
to an agency agreement dated September 1, 2000. This
agreement was also terminated on March 11, 2002.
Manufacturing commitments are made on a purchase order basis.
GFK typically has an annual agreement with each supplier, which
is cancelable at any time. The suppliers are paid primarily on
terms, and occasionally in cash or on terms with a letter of
credit.

The bulk of Funnoodles products are
manufactured through an exclusive outsourcing arrangement with
two United States-based manufacturers. This arrangement allows
us to minimize capital investments in tools and fixtures,
reduces our working capital requirements and eliminates the need
for warehousing facilities. The remainder of Funnoodles
products are manufactured through outsourcing arrangements with
various other contract manufacturers. Although Tai Nam and
Funnoodle did not currently execute an agency agreement,
Funnoodle and Tai Nam do have an existing relationship, whereby
Tai Nam was acting as a purchasing agent for Funnoodle.
Effective March 11, 2002, this arrangement was terminated.

Government and Industry Regulation

We are subject to the provisions of the Federal
Hazardous Substances Act, the Federal Consumer Product Safety
Act, the Flammable Fabrics Act and the regulations promulgated
under each such act. Such acts empower the Consumer Product
Safety Commission (CPSC) to protect the public from
hazardous goods. The CPSC has the authority to exclude from the
market goods that are found to be hazardous and requires a
manufacturer to repurchase such goods under certain
circumstances. We send samples of all of our marketed products
to independent laboratories to test for compliance with the
CPSCs rules and regulations, as well as with the product
standards of the Toy Manufacturers of America, Inc.
(TMA). We are not required to comply with the
product standards of the TMA, but do so voluntarily. Similar
consumer protection laws exist in state and local jurisdictions
within the United States, as well as certain foreign countries.
We

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design our products to exceed the highest safety
standards imposed or recommended either by government or
industry regulatory authorities.


We are not required by the United States
government to obtain any quality or safety approvals prior to
sales in the United States. However, prior to shipment, our
products are tested by independent laboratories on behalf of us
and major retailers. We, however, are required to have and have
obtained European Community (CE) approval, Europeans
toy safety standard, for our products sold in Europe.

Our advertising is subject to the Childrens
Television Act of 1990 and the rules promulgated by the United
States Federal Communications Commission as well as the laws of
certain countries that place certain limitations on television
commercials during childrens programming. We are subject
to various other federal, state and local laws and regulations
applicable to our business and believe that we are in
substantial compliance with these laws and regulations.

Tariffs and Duties

In December 1994, the United States approved a
trade agreement pursuant to which import duties on toys, games,
dolls and other specified items were eliminated effective
January 1, 1995 from products manufactured in all most
favored nation countries (including China). The imposition or
increases in quotas, duties, tariffs or other changes or trade
restrictions, which may be imposed in the future, would have a
material adverse effect on our financial condition, operating
results or ability to import products. In particular, our costs
would be increased if Chinas most favored nation status
was revoked. In October 2000, the United States Congress
approved permanent normal trade relations status for
China, which was intended to eliminate the United States
annual review of Chinas trade relations status.
China has signed similar agreements with the European Union and
other World Trade Organization members in order to gain support
for its entry into the World Trade Organization, although such
entry is not guaranteed at this time. However, the imposition of
trade sanctions by the United States or the European Union, or
the loss of permanent normal trade relations status by China
could result in substantial duties on the cost of toy, candy and
kite related products manufactured in China and imported into
the United States and Europe.

In addition, several of our operations and our
primary agent, Tai Nam, are based in Hong Kong, formerly a
British Crown Colony. On July 1, 1997, sovereignty of Hong
Kong reverted back to China. To date, this change has not
impacted our business.

Patents, Trademarks and Proprietary
Technology

We own or control numerous patents and
trademarks, which limit the ability of third parties to directly
compete with us in our major brands. Key patents cover the
Creepy Crawlers Workshop and the Creature Creator
ovens, as well as aspects of the Laser Challenge system
and infrared remote control vehicles. Key trademarks include
Creepy Crawlers, Plasti-Goop, Laser Challenge,
Arcadia, Mighty Mos,
R.A.D.TM, Funnoodle, WindWheelsand
WindDesigns.

Certain of our product lines also incorporate
concepts or technologies created by outside designers, some of
which are patented. In addition, many of our products
incorporate intellectual property rights, such as characters or
brand names that are proprietary to third parties. We typically
enter into a license agreement to acquire the rights to the
concepts, technologies or other rights for use with our
products. These license agreements typically provide for the
retention of ownership of the technology, concepts or other
intellectual property by the licensor and the payment of a
royalty to the licensor. Such royalty payments generally are
based on the net sales of the licensed product for the duration
of the license and, depending on the revenues generated from the
sale of the licensed product, may be substantial. In addition,
such agreements often provide for an advance payment of
royalties and may require us to guarantee payment of a minimum
level of royalties that may exceed the actual royalties
generated from net sales of the licensed product. Some of these
agreements have fixed terms and may need to be renewed or
renegotiated prior to their expiration in order for us to
continue to sell the licensed product.

8



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##### Table of Contents



Inflation

We do not believe that the relatively moderate
rates of inflation in the United States in recent years have had
a significant effect on our operations. Although rates of
inflation in Asia have periodically resulted in an increase in
the cost of manufacturing our products and such increased costs
have had a modest impact on margins, we do not believe that
inflation in Asia has had a materially adverse effect on our
results of operations. We will continue our policy of monitoring
costs and adjusting prices accordingly.

Employees

As of June 28, 2002, we had
56 employees, substantially all of which were full time. We
are not subject to any collective bargaining agreements. We
believe that our relationship with our employees is satisfactory.




Item
2.     Properties

We lease approximately 27,000 square feet of
space in Plainview, New York for corporate offices. The lease
has an annual rental obligation, which ranges from $451,749 in
the third year to $493,638 in the sixth year, followed by a
decrease to $445,941 in the seventh year. This lease expires on
April 30, 2004.

In addition, we lease approximately 14,546 square
feet of space at the Toy Center, 200 Fifth Avenue, New
York, New York, to house our New York City Showroom facility.
This lease has an annual base rental obligation, which ranges
from $400,020 during the first three years to $443,664 in years
seven through ten. This lease expires on April 30, 2010.

We lease approximately 4,754 square feet of space
in Kowloon, Hong Kong, which we use as showroom facilities. The
annual rent under this lease is approximately $128,000. The
lease expires on October 31, 2003.

We lease approximately 25,000 square feet of
office and warehouse space in Clinton, Connecticut under a lease
expiring September 30, 2007. The total lease payments due
under this lease are approximately $963,000.




Item 3.     Legal
Proceedings

Legal Proceedings

In March 2001, George G. Grillo, a product
consultant, filed a complaint against us as well as against
Monogram International, Inc., Monogram Products
(H.K.) Ltd., Steven Lebensfeld and David Ki Kwan Chu, in
the Supreme Court of the State of New York, County of
Suffolk, alleging breach of express and implied contracts,
violation of New York State Labor Law, unjust enrichment
and unfair competition. The plaintiff seeks monetary damages
totaling $280,000 in compensatory damages, $2,500,000 in
exemplary damages plus costs and attorneys fees. We intend
to defend the action vigorously, as well as file counterclaims,
and do not believe that the lawsuit will have a material adverse
effect on our financial position or results of operations,
however, there can be no assurance of the outcome of the lawsuit.

We are involved in various other legal
proceedings and claims incident to the normal conduct of our
business. We believe that such legal proceedings and claims,
individually and in the aggregate, are not likely to have a
material adverse effect on our financial position or results of
operations.

Our federal tax returns for 1992 through 2000 are
under examination by the Internal Revenue Service and the
statute has been extended through December 2002. Our New York
State tax returns for 1999 through 2001 are also under
examination by the New York State Division of Taxation. We
cannot predict at this time what the outcome of the examination
will be or the impact, if any, on our results of operations.




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

No matters were submitted to a vote of security
holders during the fourth quarter of the fiscal year ended
March 31, 2002.

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##### Table of Contents






PART II






|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Equity and Related Stockholder Matters

Our common stock is traded on the Nasdaq National
Market System under the symbol TMAX. The following
table sets forth the high and low closing sales prices of the
Companys Common Stock in each of the following quarters as
reported by NASDAQ:

|               |  |                |      |     |  |   |      | 
|-------------- |  | -------------- | ---- | --- |  | - | ---- | 
|               |  |               
|               |  | Price Range of
|               |  | Common Stock  
|               |  |               
|               |  | High           |      | Low
|               |  |                |      |    
|Fiscal 2001:   |  |                |      |     |  |   |      | 
|First Quarter  |  | $              | 3.25 |     |  | $ | 2.31 | 
|Second Quarter |  |                | 3.69 |     |  |   | 2.31 | 
|Third Quarter  |  |                | 2.63 |     |  |   | 1.19 | 
|Fourth Quarter |  |                | 2.69 |     |  |   | 1.38 | 
|Fiscal 2002:   |  |                |      |     |  |   |      | 
|First Quarter  |  | $              | 2.50 |     |  | $ | 1.27 | 
|Second Quarter |  |                | 1.78 |     |  |   | 0.89 | 
|Third Quarter  |  |                | 1.70 |     |  |   | 0.80 | 
|Fourth Quarter |  |                | 4.49 |     |  |   | 1.50 | 

As of June 18, 2002 the number of holders of
record of our common stock was approximately 1,977.

Dividend Policy

Prior to our initial public offering, we declared
and paid dividends to our stockholders in 1993, 1994 and 1995.
We currently intend to retain earnings and we do not plan to pay
dividends on our common stock in the foreseeable future.

Stock Repurchase Program

In May 1999, our board of directors approved the
repurchase of up to $2.0 million of our common stock from
time to time on the open market, as well as through private
transactions. The timing of the stock repurchases and the total
number of shares repurchased will be determined by overall
financial and market conditions. As of June 18, 2002, a total of
66,200 shares of our common stock have been repurchased for a
total purchase price of $210,403. Because of our proposed merger
with JAKKS, as of February 10, 2002, we have ceased
repurchasing shares of our common stock.

10



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##### Table of Contents






Item
6.Selected Consolidated
Financial Data

Our Selected Consolidated Financial Data Company
has been derived from our audited consolidated financial
statements included in this report. The Selected Consolidated
Financial Data should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes
and Schedules thereto, and Managements Discussion
and Analysis of Financial Condition and Results of
Operations.

|                                                        |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |       |  
|------------------------------------------------------- | -------------------------------- | --------------------------------------------- | --------- | ---- |  | ---- | ---------- | ----- | - | ---- | ---------- | ----- | - | - | ---------- | ----- | - | - | ---------- | ----- | -
|                                                        |                                  |                                              
|                                                        |                                  | Fiscal Years Ended March 31,                 
|                                                        |                                  |                                              
|                                                        |                                  | 1998                                          |           | 1999 |  | 2000 |            | 2001  |   | 2002
|                                                        |                                  |                                               |           |      |  |      |            |       |   |     
|                                                        |                                  |                                              
|                                                        |                                  | (Dollars in thousands, except per share data)
|STATEMENT OF OPERATIONS DATA:                           |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |      
|Net sales                                               |                                  | $                                             | 99,367    |      |  | $    | 106,495    |       |   | $    | 109,865    |       |   | $ | 115,151    |       |   | $ | 94,852     |      
|Cost of goods sold                                      |                                  |                                               | 55,907    |      |  |      | 65,524     |       |   |      | 75,517     |       |   |   | 72,770     |       |   |   | 71,424     |      
|                                                        |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |      
|Gross profit                                            |                                  |                                               | 43,460    |      |  |      | 40,971     |       |   |      | 34,348     |       |   |   | 42,381     |       |   |   | 23,428     |      
|Selling and administrative expenses                     |                                  |                                               | 27,268    |      |  |      | 29,740     |       |   |      | 38,220     |       |   |   | 37,719     |       |   |   | 49,760     | (1)  
|                                                        |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |      
|Operating income (loss)                                 |                                  |                                               | 16,192    |      |  |      | 11,231     |       |   |      | (3,872     | )     |   |   | 4,662      |       |   |   | (26,332    | )    
|Income (loss) of joint venture                          |                                  |                                               |          |      |  |      |           |       |   |      | 290        |       |   |   | (2,560     | )     |   |   |           |      
|Other income (expense), net                             |                                  |                                               | (507      | )    |  |      | (196       | )     |   |      | 144        |       |   |   | (102       | )     |   |   | (615       | )    
|Interest income (expense), net                          |                                  |                                               | (212      | )    |  |      | 985        |       |   |      | (536       | )     |   |   | (885       | )     |   |   | (978       | )    
|                                                        |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |      
|Income (loss) before income taxes                       |                                  |                                               | 15,473    |      |  |      | 12,020     |       |   |      | (3,974     | )     |   |   | (1,115     | )     |   |   | (27,925    | )    
|Income tax expense (benefit)                            |                                  |                                               | 4,133     |      |  |      | 3,275      |       |   |      | (2,207     | )     |   |   | (1,087     | )     |   |   | (7,498     | )    
|                                                        |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |      
|Income (loss) from continuing operations                |                                  |                                               | 11,340    |      |  |      | 8,745      |       |   |      | (1,767     | )     |   |   | 29         |       |   |   | (20,427    | )    
|Loss from discontinued operations                       |                                  |                                               |          |      |  |      | (129       | )     |   |      | (134       | )     |   |   | (9,776     | )     |   |   | (3,435     | )    
|                                                        |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |      
|Net income (loss)                                       |                                  | $                                             | 11,340    |      |  | $    | 8,616      |       |   | $    | (1,901     | )     |   | $ | (9,747     | )     |   | $ | (23,861    | )    
|                                                        |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |      
|Basic and diluted loss per share from:                  |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |      
|                                                        | Continuing Operations            |                                               | $         | 1.28 |  |      | $          | 0.82  |   |      | $          | (0.17 | ) |   | $          |      |   |   | $          | (1.69 | )
|                                                        | Discontinued Operations          |                                               |           |     |  |      |            | (0.01 | ) |      |            | (0.01 | ) |   |            | (0.86 | ) |   |            | (0.28 | )
|                                                        |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |      
|                                                        | Basic and diluted loss per share |                                               | $         | 1.28 |  |      | $          | 0.81  |   |      |            | (0.18 | ) |   | $          | (0.86 | ) |   | $          | (1.97 | )
|Cash dividends declared per common share                |                                  | $                                             |          |      |  | $    |           |       |   | $    |           |       |   | $ |           |       |   | $ |           |      
|                                                        |                                  |                                               |           |      |  |      |            |       |   |      |            |       |   |   |            |       |   |   |            |      
|Basic and diluted average common shares
    outstanding |                                  |                                               | 8,847,781 |      |  |      | 10,605,000 |       |   |      | 10,596,677 |       |   |   | 11,280,804 |       |   |   | 12,116,843 |      

|                                                                  |  |           |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |         |  
|----------------------------------------------------------------- |  | --------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------- | -
|                                                                  |  |          
|                                                                  |  | March 31,
|                                                                  |  |          
|                                                                  |  | 1998      |        | 1999 |  | 2000 |        | 2001 |  | 2002
|                                                                  |  |           |        |      |  |      |        |      |  |     
|BALANCE SHEET DATA:                                               |  |           |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |         |  
|Working capital (deficit)                                         |  | $         | 31,755 |      |  | $    | 30,417 |      |  | $    | 6,163  |  |  | $ | 7,693  |  |  | $ | (14,153 | )
|Total assets                                                      |  |           | 53,831 |      |  |      | 62,584 |      |  |      | 89,073 |  |  |   | 69,088 |  |  |   | 55,806  |  
|Short-term debt (including current portion of
    long term debt) |  |           | 30     |      |  |      | 37     |      |  |      | 14,666 |  |  |   | 10,000 |  |  |   | 15      |  
|Long-term obligations                                             |  |           | 47     |      |  |      | 32     |      |  |      | 50     |  |  |   | 1,212  |  |  |   |        |  
|Total stockholders equity                                        |  |           | 34,703 |      |  |      | 43,319 |      |  |      | 41,301 |  |  |   | 35,594 |  |  |   | 14,636  |  



---



|    |                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in selling and administrative expenses
    for year ended March 31, 2002 is $15.6 million of
    restructuring charges as described in footnote 2 in the
    Toymax consolidated financial statements.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Toymax and its subsidiaries is a consumer leisure
products company that creates, designs and markets innovative
and technologically advanced toys as well as other leisure
products, which are sold in the United States and throughout the
world. Toymax products promote fun and creative play, and are
available under

11



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##### Table of Contents



several brands: Toymax® toys, such as
R.A.D.TMRobot, Mighty
MosTM vehicles, the award-winning Laser
ChallengeTM brand, Creepy
CrawlersTM activities brand and TMX
RCTM radio control vehicles;
Funnoodle® pool and water toys and accessories;
Go Fly a Kite® kites, banners,
WindWheelsTM, weathervanes and wind chimes.


Critical Accounting Policies

Financial Reporting Release No. 60, which
was recently released by the SEC, requires all companies to
include in this item a discussion of critical accounting
policies or methods used in the preparation of financial
statements. Note 1 of the Notes to the Consolidated
Financial Statements includes a summary of the significant
accounting policies and methods used by us in the preparation of
our Consolidated Financial Statements. The following is a brief
discussion of the more critical of these accounting policies and
methods.

Revenue recognition.Our revenue recognition policy is significant because our
revenue is a key component of our results of operations. In
addition, our revenue recognition determines the timing of
certain expenses, such as commissions and royalties. We follow
very specific and detailed guidelines in measuring revenues;
however, certain judgments affect the application of our revenue
policy. Revenue results are difficult to predict, and any
shortfall in revenue or delay in recognizing revenue could cause
our operating results to vary significantly from quarter to
quarter and could result in future operating losses.

Valuation of long-lived assets and
goodwill.We assess the impairment of
long-lived assets and goodwill whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger
an impairment review include the following:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | significant underperformance relative to expected
    historical or projected future operating results;          
|
| |  | significant changes in the manner of our use of
    the acquired assets or the strategy for our overall business;
|
| |  | significant negative industry or economic trends;                                                                
|
| |  | significant decline in our stock price for a
    sustained period; and                                           
|
| |  | our market capitalization relative to net book
    value.                                                        

When we determine that the carrying value of
long-lived assets and goodwill may not be recoverable based upon
the existence of one or more of the above indicators of
impairment, we measure any impairment based on a projected
discounted cash flow method using a discount rate determined by
our management to be commensurate with the risk inherent in our
current business model. Net long-lived assets and goodwill
amounted to $17.3 million as of March 31, 2002.

In fiscal 2002, Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets became effective and as a result,
we will cease to amortize approximately $14.5 million of
goodwill. We had recorded approximately $1.1 million of
amortization on these amounts during fiscal 2001 and would have
recorded approximately $1.5 million of amortization during
fiscal 2002. In lieu of amortization, we performed an initial
impairment review of our goodwill in fiscal 2002 and an annual
impairment reviews thereafter.

We did not have to record an impairment charge
upon completion of the initial impairment review.

12



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##### Table of Contents



Results of Operations

The following table sets forth the percentages of
net sales of certain income and expense items of Toymax for the
last three fiscal years:

|                                         |  |                      |       |      |  |      |       |    |  |  |       |   
|---------------------------------------- |  | -------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                         |  |                     
|                                         |  | Percentage of       
|                                         |  | Net Sales           
|                                         |  | Year Ended March 31,
|                                         |  |                     
|                                         |  | 2000                 |       | 2001 |  | 2002
|                                         |  |                      |       |      |  |     
|Net sales                                |  |                      | 100.0 | %    |  |      | 100.0 | %  |  |  | 100.0 | % 
|Cost of goods sold                       |  |                      | 68.7  |      |  |      | 63.2  |    |  |  | 75.3  |   
|                                         |  |                      |       |      |  |      |       |    |  |  |       |   
|Gross profit                             |  |                      | 31.3  |      |  |      | 36.8  |    |  |  | 24.7  |   
|Selling and administrative expenses      |  |                      | 34.8  |      |  |      | 32.8  |    |  |  | 52.5  |   
|                                         |  |                      |       |      |  |      |       |    |  |  |       |   
|Operating income (loss)                  |  |                      | (3.5  | )    |  |      | 4.0   |    |  |  | (27.8 | ) 
|Income (loss) of joint venture           |  |                      | 0.3   |      |  |      | (2.2  | )  |  |  |      |   
|Other income (expense), net              |  |                      | 0.1   |      |  |      | (0.1  | )  |  |  | (0.6  | ) 
|Interest income (expense), net           |  |                      | (0.5  | )    |  |      | (0.8  | )  |  |  | (1.0  | ) 
|Provision (benefit)for income taxes      |  |                      | (2.0  | )    |  |      | (0.9  | )  |  |  | (7.9  | ) 
|Income (loss) from continuing operations |  |                      | (1.6  | )    |  |      |      |    |  |  | (21.5 | ) 
|Loss from discontinued operations        |  |                      | (0.1  | )    |  |      | (8.5  | )  |  |  | (3.6  | ) 
|                                         |  |                      |       |      |  |      |       |    |  |  |       |   
|Net loss                                 |  |                      | (1.7  | )%   |  |      | (8.5  | )% |  |  | (25.1 | )%
|                                         |  |                      |       |      |  |      |       |    |  |  |       |   

For purposes of the fiscal year comparisons
which follow, figures referring to the financial performance of
Toymax Inc. (TMI) and Toymax (H.K.) Limited
(THK), are referred to as Toymax Brands
and those referring to the performance of Go Fly a Kite, Inc.
(GFK), and the Funnoodle product line
(Funnoodle) are referred to as Toymax
Enterprises.

Recent Developments

On March 11, 2002, JAKKS acquired
approximately a 66.8% controlling interest in Toymax. In
connection with this acquisition by JAKKS, Toymax developed and
began to implement a restructuring plan to maximize its future
operating results. The fiscal 2002 results reflect this
restructuring plan. As part of this plan Toymax has determined
not to continue the operations of Maxverse Interactive, Inc,
(Maxverse). Thus, Maxverse is treated as a
discontinued operation along with Monogram International, Inc.
and Candy Plant, which were both sold effective
November 30, 2001.

Fiscal Year Ended March 31, 2002 Compared
With Fiscal Year Ended March 31, 2001

Net Sales.Net sales
for fiscal 2002 decreased $20.3 million, or 17.6%, to
$94.9 million from $115.2 million in fiscal 2001.

Net sales of Toymax Brands decreased 23.3% to
$65.6 million, or 69.1% of total net sales, from
$85.5 million, or 74.2% of total net sales, in fiscal 2001.
The decrease in net sales was primarily due to a decrease in
sales of IR and programmable vehicles and an increase in sales
discounts and allowances.

Net sales of Toymax Enterprises decreased 1.3% to
$29.3 million, or 30.9% of total net sales, from
$29.7 million, or 25.8% of total net sales, in fiscal 2001.
The decrease in net sales was primarily the result of a decrease
in the selling prices of pool and backyard water recreational
products offset somewhat by an increase in kites and windwheels.

Gross Profit.Gross
profit for fiscal 2002 decreased by $19.0 million, or
44.7%, to $23.4 million from $42.4 million for fiscal
2001, with a decrease in gross margin from 36.8% of net sales
for fiscal 2001 to 24.7% in fiscal 2002.

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The gross profit for Toymax Brands decreased by
$16.9 million, or 53.3%, to $14.8 million, or 22.7% of
net sales, from $31.8 million, or 37.2% of net sales for
fiscal 2001. The decrease in the gross profit and margin was
primarily the result of the decrease in sales volume, along with
the increase in sales discounts and allowances.

The gross profit for Toymax Enterprises decreased
$2.0 million, or 19.0%, to $8.6 million, or 29.3% of
net sales, from $10.6 million, or 35.7% of net sales for
fiscal 2001. The decrease in both gross profit and margin was
primarily the result of reduced selling prices of Toymaxs
pool and backyard water recreation products and to a lesser
extent margins realized by GFK primarily as a result of product
mix.

Selling and Administrative
Expenses.Selling and administrative
expenses for fiscal 2002 increased by $12.0 million, or
31.9%, to $49.8 million, or 52.5% of net sales, from
$37.7 million, or 32.8% of net sales, for fiscal 2001.
Selling and administrative expenses of Toymax Brands for fiscal
2002 increased by $13.5 million, or 44.1%, to
$44.1 million, or 67.2% of net sales, from
$30.6 million, or 35.8% of net sales, for fiscal 2001. This
increase was a result of the restructuring charge of
$15.6 million relating to the acquisition of approximately
66.8% of Toymax by JAKKS. This charge includes a
$7.1 million write-off of certain assets which will not be
utilized by the combined companies, as well as severance
accruals of $1.4 million, termination costs of certain
agreements of $2.2 million, professional fees and other
charges of $2.2 million and a one time charge of
$2.7 million for changing the terms of the existing stock
options. This charge was offset by decreases in advertising and
royalties related to the decrease in sales. Selling and
administrative expenses of Toymax Enterprises for fiscal 2002
decreased $1.5 million, or 20.0%, to $5.6 million, or
19.4% of net sales, from $7.1 million, or 23.9% of net
sales, for fiscal 2001. The decrease was primarily the result of
a decrease in amortization of goodwill and consulting fees
offset by the restructuring charge.

Operating Income
(Loss).As a result of the foregoing,
fiscal 2002 had a loss of $26.3 million compared to income
of $4.6 million in fiscal 2001. Toymax Brands incurred an
operating loss of $29.2 million in fiscal 2002 compared to
operating income of $1.2 million in fiscal 2001. Toymax
Enterprises had operating income of $2.9 million in fiscal
2002, compared to operating income of $3.5 million in
fiscal 2001.

Other Income (Expense),
Net.Net other expense decreased from
$2.8 million, in fiscal 2001, to $0.6 million, in
fiscal 2002. This decrease was the result of the write-off of
advances and the investment in the Yaboom Limited joint venture
of $1.9 million and the equity in the loss of the joint
venture of $0.7 million in fiscal 2001. In fiscal 2002,
there were no such charges.

Interest Income (Expense),
Net.Net interest expense for fiscal
2002 increased $0.1 million, or 10.5%, to $1.0 million
from $0.9 million in fiscal 2001. The increase in net
interest expense was primarily due to increased bank borrowings
in fiscal 2002.

Income (Loss) Before Income
Taxes.Loss before income taxes for
fiscal 2002 was $27.9 million, compared to income before
income taxes of $1.1 million in fiscal 2001. In fiscal
2002, Toymax Brands had a loss before income taxes of
$30.6 million, compared to a loss of $2.3 million in
fiscal 2001. Toymax Enterprises had income before taxes of
$2.7 million in fiscal 2002, compared to income before
income taxes of $3.4 million in fiscal 2001.

Provision (Benefit) For Income
Taxes.The effective rate for fiscal
2002 decreased to a benefit of 26.9% from an effective rate of
97.4% for fiscal 2001. The change in the effective rate is
primarily related to the write-off of the investment in and
advances to the joint venture in fiscal 2001 which did not
result in any income tax benefit.

Income (Loss) From Continuing
Operations.Loss from continuing
operations was $20.4 million in fiscal 2002, compared to a
nominal profit in fiscal 2001.

Loss From Discontinued
Operations.The loss from discontinued
operations decreased by $6.3 million, to a net loss of
$3.4 million in fiscal 2002, compared to a loss of
$9.8 million in fiscal 2001.

Net Loss.As a
result of the foregoing, the net loss for fiscal 2002 increased
$14.1 million to $23.9 million ($1.97 per diluted
share) from $9.7 million ($0.86 per diluted share) for
fiscal 2001.

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Fiscal Year Ended March 31, 2001 Compared with
Fiscal Year Ended March 31, 2000

Net Sales.Net sales
for fiscal 2001 increased $5.3 million, or 5.0%, to
$115.2 million from $109.9 million in fiscal 2000.

Net sales of Toymax Brands decreased 6.1% to
$85.5 million, or 74.2% of total net sales, from
$91.1 million, or 82.9% of total net sales, in fiscal 2000.
The decrease in net sales was primarily due to a decrease in the
sales of electronic toys that was partially offset by an
increase in sales of infrared, radio-controlled and programmable
vehicles.

Net sales of Toymax Enterprises increased 57.7%
to $29.7 million, or 25.8% of total net sales, from
$18.8 million, or 17.1% of total net sales, in fiscal 2000.
The increase was primarily the result of the incorporation of a
full years net sales of Funnoodle, which was acquired in
November 1999.

Gross Profit.Gross
profit for fiscal 2001 increased by $8.0 million, or 23.4%,
to $42.4 million from $34.3 million the gross margin
also increased from 31.3% in fiscal 2000 to 36.8% in fiscal 2001.

The gross profit of Toymax Brands increased by
$4.1 million, or 14.6%, to $31.8 million, or 37.2% of
net sales, from $27.7 million, or 30.5% of net sales, for
fiscal 2000. The increase in gross margin was primarily
attributable to the decrease in markdowns, allowances and other
promotional costs, which were adversely affected by the product
recall in the prior year.

The gross profit of Toymax Enterprises increased
by $4.0 million, or 60.1%, to $10.6 million, or 35.7%
of net sales, from $6.6 million, or 35.2% of net sales, for
fiscal 2000. The increase in gross profit was primarily due to a
full years net sales of Funnoodle combined with better
pricing.

Selling and Administrative
Expenses.Selling and administrative
expenses for fiscal 2001 decreased by $0.5 million, or
1.3%, to $37.7 million, or 32.8% of net sales, from
$38.2 million, or 34.8% of net sales, for fiscal 2000.
Selling and administrative expenses of Toymax Brands for fiscal
2001 decreased by $3.1 million, or 9.2%, to
$30.6 million, or 35.8% of net sales, from
$33.7 million, or 37.0% of net sales, for fiscal 2000. The
decrease reflects a decrease in advertising costs of almost 30%,
which was partially offset by higher royalties and research and
development costs. Selling and administrative expenses of Toymax
Enterprises were $7.1 million, or 23.9% of net sales, as
compared to $4.2 million, or 22.4% of net sales in
fiscal 2000. Selling and administrative expenses for Toymax
Enterprises in fiscal 2001 reflect a full years
operating expenses of Funnoodle.

Operating Income
(Loss).As a result of the foregoing,
the operating income for fiscal 2001 increased by
$8.5 million, or 220.4%, to $4.7 million from an
operating loss of $3.9 million for fiscal 2000. Operating
income for Toymax Brands increased by $7.4 million, or
118.4%, to $1.2 million from an operating loss of
$6.3 million for fiscal 2000. Operating income for
Toymax Enterprises increased by $1.1 million to
$3.5 million from operating income of $2.5 million in
fiscal 2000.

Other Income (Expense),
Net.In fiscal 2001, Toymax recorded a
write-off of its advances and investment in the Yaboom joint
venture of $1.9 million. Including this charge and the
increase in the Companys equity in the operating loss of
the Yaboom venture in fiscal 2001, net other income for
fiscal 2001 decreased by $3.2 million from
$0.4 million in fiscal 2000 to net other expense of
$2.8 million in fiscal 2001.

Interest Income (Expense),
Net.Net interest expense for
fiscal 2001 increased by $0.4 million, or 65.1%, to
$0.9 million from $0.5 million in fiscal 2000.
The increase in net interest expense was primarily due to the
use of working capital funds to finance Toymaxs
acquisitions and operations.

Income (Loss) Before Income
Taxes.Income before taxes for
fiscal 2001 increased by $5.1 million to
$1.1 million, compared to a loss before taxes of
$4.0 million for fiscal 2000. Income before taxes for
Toymax Brands increased by $4.0 million, or 63.8%, to a
loss before taxes of $2.3 million, compared to a loss
before taxes of $6.3 million for fiscal 2000. Income
before taxes for Toymax Enterprises increased by
$1.1 million to $3.4 million, compared to income
before taxes of $2.3 million in fiscal 2000.

Provision (Benefit) for Income
Taxes.The effective tax rate for
fiscal 2001 increased to 97.4% from a benefit of 55.5% for
fiscal 2000. The increase in the effective tax rate was
primarily a result of the geographic

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distribution of income, as well as the reduction
in the tax benefit attributable to the write-off of the
investment in and advances to the joint venture.


Income (Loss) From Continuing
Operations.Income from continuing
operations increased from a loss of $1.8 million in fiscal
2000, compared to break even in fiscal 2001.

Loss From Discontinued
Operations.The loss from discontinued
operations increased by $9.7 million, to a net loss of
$9.8 million, in fiscal 2001, from a loss of
$0.1 million in fiscal 2000.

Net Income (Loss).As a result of the foregoing, the net loss for fiscal 2001
increased $7.8 million to $9.7 million ($0.86 per
diluted share) from $1.9 million ($0.18 per diluted share)
for fiscal 2000.

Liquidity and Capital Resources

Toymax historically has funded its operations and
capital requirements from cash generated from operations and
from financing activities. During fiscal 2002, cash and cash
equivalents decreased $0.8 million to $0.9 million. The
Companys operating activities provided net cash of
$2.3 million, which was primarily due to net loss offset by
net non-cash charges of $0.4 million, an increase in net
operating assets of $25.8 million. Net operating assets
included an increase of $13.2 million in accounts payable
and accrued expenses, which was offset by a decrease in due to
affiliates of $6.3 million and decreases of
$5.0 million from factor and accounts receivable,
$1.8 million in inventories and other assets of
$12.0 million.

Investing activities used $4.7 million in
net cash as compared to $5.6 million in fiscal 2001. Investing
activities in the current year consisted of $3.5 million of
capital expenditures and the payment of $1.2 million of
additional purchase price for the Funnoodle product line.
Investing activities in the prior year included
$2.6 million related to business acquisitions and $3.0
million for capital expenditures. Capital expenditures in both
periods consist principally of the purchase of tooling for new
products and equipment.

Financing activities provided $1.6 million
in net cash, primarily due from funding received by JAKKS of
$11.3 million substantially offset by the repayment of
$10.0 million of bank debt. Toymax also received
$0.2 million from the exercise of stock options.

In March 2002, Toymaxs $25.0 million
bank facility was paid off in full and terminated.

In April 2002, Toymax (H.K.) Limited subsidiary
terminated its credit facility with The Hongkong and Shanghai
Banking Corporation Limited. The facility had provided for an
import line of credit of $500,000 and the acceptance of an
export letter of credit guarantee for documents presented with
discrepancies of up to approximately $2.3 million.

Toymax expects to fund its near-term and
long-term cash requirements from a combination of existing cash
balances, cash flow from operations and borrowings from JAKKS.
There can be no assurance that sufficient cash flows from
operations will materialize or that financing from JAKKS or
under a credit facility will be available in amounts, at rates,
or on terms and conditions acceptable to Toymax. In such event,
additional funding would be required.

In addition to obligations previously discussed,
we have operating leases expiring through April 2010 with
annual lease payments ranging from approximately $625,000 to
$1.1 million.

New Accounting Standards

The Financial Accounting Standards Board
(FASB) issued SFAS No. 141, Business
Combinations, and No. 142, Goodwill and
Intangible Assets. SFAS No. 141 requires the use of
the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. SFAS
No. 141 also requires that Toymax recognize acquired
intangible assets apart from goodwill if the acquired intangible
assets meet certain criteria. SFAS No. 141 applies to all
business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after
July 1, 2001. It also requires, upon adoption of SFAS
No. 142, that Toymax reclassify, if necessary, the carrying
amounts of intangible assets and goodwill based on the criteria
of SFAS No. 141.

In April 2001, Toymax elected to adopt SFAS
No. 142. SFAS No. 142 requires, among other things,
that companies no longer amortize goodwill, but instead test
goodwill for impairment at least annually. In addition, SFAS
No. 142 requires that Toymax identify reporting units for
the purposes of assessing potential future

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impairments of goodwill, reassess the useful
lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life.


Toymaxs previous business combinations were
accounted for using the purchase method and as of April 1,
2001, the net carrying amount of goodwill from prior purchase
transactions was approximately $14.5 million. Annual
amortization of this amount, which ceased being effective as of
April 1, 2001, amounted to approximately $1.5 million.

In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the fair value of
a liability for an asset retirement obligation to be recognized
in the period in which it is incurred if a reasonable estimate
of fair value can be made. The associated asset retirement costs
are capitalized as part of the carrying amount of the long-lived
asset. SFAS No. 143 is effective for fiscal years beginning
after June 18, 2002. We believe the adoption of this statement
will have no material impact on the financial statements.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 requires that those
long-lived assets be measured at the lower of carrying amount or
fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. Therefore,
discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that
have not yet occurred. SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after
December 14, 2001 and, generally, is to be applied
prospectively. Toymax has elected to early adopt SFAS
No. 144 in the current fiscal year.

Barter Transaction

In December 1998 and April 1999, Toymax entered
into agreements with a broker of media advertising, whereby
Toymax sold and transferred title to merchandise of Toymax
having a fair value of approximately $6.9 million in
exchange for approximately $8.7 million in trade credits.
In March, 2002, the total remaining net asset balance of
approximately $4.0 million which is not expected to be
utilized as a result of the acquisition by JAKKS, was expensed.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

Toymax is exposed to certain market risks, which
arise from transactions entered into in the normal course of
business. Toymaxs primary exposures are changes in
interest rates with respect to its debt and foreign currency
exchange fluctuations.

Interest Rate Risk

The interest payable on Toymaxs revolving
line-of-credit is variable based on LIBOR and/or the prime rates
in the United States and Hong Kong, and therefore, affected by
changes in market interest rates. Toymax does not use derivative
financial instruments.

Foreign Currency Risk

While the Toymax product purchases are transacted
in United States dollars, most transactions among the suppliers
and subcontractors of Jauntiway Investments Limited, an OEM toy
manufacturer that has been Toymaxs most important
manufacturer since inception, are effected in Hong Kong dollars.
Accordingly, fluctuations in Hong Kong monetary rates may have
an impact on Toymaxs cost of goods. However, since 1983,
the value of the Hong Kong dollar has been tied to the value of
the United States dollar, eliminating fluctuations between the
two currencies. Despite the announcements by the Hong Kong
Government that it is determined to maintain such fixed exchange
rate, there can be no assurance that the Hong Kong dollar will
continue to be tied to the United States dollar in the near
future or longer term. Furthermore, appreciation of Chinese
currency values relative to the Hong Kong dollar could increase
the cost to Toymax of the products manufactured in China, and
thereby have a negative impact on Toymax.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The Consolidated Financial Statements and
Financial Statement Exhibits are listed in Item 14 and are
included herein.






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

None.




PART III




Item 10.     Directors
and Executive Officers of the Registrant

Directors and Executive Officers

Our directors and executive officers are as
follows:

|                  |  |     |    |                            |  |                                  
|----------------- |  | --- | -- | -------------------------- |  | ---------------------------------
|Name              |  | Age |    | Positions with the Company
|                  |  |     |    |                           
|Jack Friedman     |  |     | 62 |                            |  | Chief Executive Officer          
|Stephen G. Berman |  |     | 36 |                            |  | President, Secretary and Director
|Joel M. Bennett   |  |     | 40 |                            |  | Chief Financial Officer          
|Dan Almagor       |  |     | 49 |                            |  | Director                         
|David C. Blatte   |  |     | 37 |                            |  | Director                         
|Robert E. Glick   |  |     | 55 |                            |  | Director                         
|Joel Handel       |  |     | 66 |                            |  | Director                         
|Michael G. Miller |  |     | 53 |                            |  | Director                         
|Murray L. Skala   |  |     | 55 |                            |  | Director                         

Jack Friedmanhas
been our Chief Executive Officer since March 2002 and has been
the Chairman, Chief Executive Officer and director of JAKKS
since co-founding JAKKS with Mr. Berman in January 1995.
From January 1989 until January 1995, Mr. Friedman was
Chief Executive Officer, President and a director of THQ. From
1970 to 1989, Mr. Friedman was President and Chief
Operating Officer of LJN Toys, Ltd., a toy and software
company. After LJN was acquired by MCA/ Universal, Inc. in 1986,
Mr. Friedman continued as President until his departure in
late 1988.

Stephen G. Bermanhas been our President since March
2002 and has been the President, Chief Operating Officer,
Secretary and one of the directors of JAKKS since co-founding
JAKKS with Mr. Friedman in January 1995. From October 1991
to August 1995, Mr. Berman was a Vice President and
Managing Director of THQ International, Inc., a subsidiary of
THQ. From 1988 to 1991, he was President and an owner of
Balanced Approach, Inc., a distributor of personal fitness
products and services.

Joel M. Bennetthas
been our Chief Financial Officer since March 2002. Since
September 1995, he has been the Chief Financial Officer of JAKKS
and was given the additional title of Executive Vice President
of JAKKS in May 2000. From August 1993 to September 1995, he
served in several financial management capacities at Time Warner
Entertainment Company, L.P., including as Controller of Warner
Brothers Consumer Products Worldwide Merchandising and
Interactive Entertainment. From June 1991 to August 1993,
Mr. Bennett was Vice President and Chief Financial Officer
of TTI Technologies, Inc., a direct-mail computer hardware and
software distribution company. From 1986 to June 1991,
Mr. Bennett held various financial management positions at
The Walt Disney Company, including Senior Manager of Finance for
its international television syndication and production
division. Mr. Bennett holds a Master of Business
Administration degree and is a Certified Public Accountant.

Dan Almagorhas been
a director of Toymax since July 2001. Mr. Almagor has been
the Chairman and Executive Partner of ACG International, Inc., a
company which serves as director and advisor to For-

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tune 1000 and privately-held companies,
since 1989. Mr. Almagor has also served as Chairman and
Chief Executive Officer for several public and privately-held
companies.


David C. Blattehas
been one of our directors since March 2002. From January
1993 to May 2000, Mr. Blatte was a Senior Vice President in
the specialty retail group of the investment banking division of
Donaldson, Lufkin and Jenrette Securities Corporation. Since May
2000, Mr. Blatte has been a principal in Catterton
Partners, a private equity fund. Mr. Blatte is a director
of JAKKS and Case Logic, Inc., a privately-held consumer
products company.

Robert E. Glickhas
been one of our directors since March 2002. For more than
20 years, Mr. Glick has been an officer, director and
principal stockholder in a number of privately-held companies
which manufacture and market womens apparel.
Mr. Glick is a director of JAKKS.

Joel Handelhas been
a director of Toymax since October 1997. Mr. Handel was a
partner in the law firm of Baer Marks & Upham LLP, which
served as counsel to the Company, from 1968 to December 2001.
Mr. Handel has been a partner in the law firm of Brown
Raysman Millstein Felder & Steiner LLP, which serves as
counsel to the Company, since January 2002. From April 1987
through March 1997, Mr. Handel was a member of the Board of
Directors of Tyco Toys, Inc., a company for which Baer Marks
& Upham LLP also served as counsel. Mr. Handel is presently
involved in a pending personal bankruptcy action.

Michael G. Millerhas been one of our directors since
March 2002. From 1979 until May 1998, Mr. Miller was
President and a director of several privately-held affiliated
companies, including a list brokerage and list management
consulting firm, a database management consulting firm, and a
direct mail graphic and creative design firm.
Mr. Millers interests in such companies were sold in
May 1998. Since 1991, he has been President of an advertising
company. Mr. Miller is a director of JAKKS.

Murray L. Skalahas
been one of our directors since March 2002. Since 1976,
Mr. Skala has been a partner of the law firm Feder,
Kaszovitz, Isaacson, Weber, Skala, Bass & Rhine LLP, our
general counsel. Mr. Skala is a director of JAKKS and
Traffix, Inc., a publicly-held company in the business of
telecommunications services and entertainment.

Our directors hold office until the next annual
meeting of stockholders and until their successors are elected
and qualified.

Committees of the Board of Directors

We have an Audit Committee, and a Compensation
Committee. The Board does not have a Nominating Committee and
performs the functions of a Nominating Committee itself.

Audit Committee.The
primary functions of the Audit Committee are to select or to
recommend to our Board the selection of outside auditors; to
monitor our relationships with our outside auditors and their
interaction with our management in order to ensure their
independence and objectivity; to review, and to assess the scope
and quality of, our outside auditors services, including
the audit of our annual financial statements; to review our
financial management and accounting procedures; and to review
our financial statements with our management and outside
auditors. Messrs. Blatte, Glick and Miller are the current
members of the Audit Committee.

Compensation Committee.The functions of the Compensation
Committee are to make recommendations to the Board regarding
compensation of management employees and to administer plans and
programs relating to employee benefits, incentives and
compensation. Messrs. Blatte, Glick and Miller are the
current members of the Compensation Committee.

Section 16(a) Beneficial Ownership Reporting
Compliance

To the best of our knowledge, all Forms 3, 4
or 5 required to be filed pursuant to Section 16(a) of the
Exchange Act during or with respect to the fiscal year ended
March 31, 2002 were filed on a timely basis.

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Item 11.     Executive
Compensation

We do not pay any compensation to our Named
Officers because our Named Officers are also Named Officers of
JAKKS and each Named Officer receives his compensation from
JAKKS in connection with his duties as a Named Officer of JAKKS.




Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

The following table furnishes information
concerning all persons known to beneficially own 5% or more of
Toymax common stock as of June 18, 2002.

|                                                         |  |              |           |            |  |  |       | 
|-------------------------------------------------------- |  | ------------ | --------- | ---------- |  |  | ----- | 
|                                                         |  | Shares       |           |           
|                                                         |  | Beneficially |           | Percent of
|Name and Address of Beneficial Owner                     |  | Owned        |           | Class     
|                                                         |  |              |           |           
|JAKKS Pacific, Inc.                                      |  |              | 8,232,819 |            |  |  | 66.8% | 
|22619 Pacific Coast Highway
    Malibu, California 90265 |  |              |           |            |  |  |       | 




Item 13.     Certain
Relationships and Related Transactions

The following table furnishes information
concerning the ownership by directors, officers and directors
and officers as a group of Toymax common stock as of June 18,
2002.

|                                              |  |              |         |            |  |  |   | 
|--------------------------------------------- |  | ------------ | ------- | ---------- |  |  | - | 
|                                              |  | Shares       |         |           
|                                              |  | Beneficially |         | Percent of
|Name and Address of Beneficial Owner(1)       |  | Owned        |         | Class     
|                                              |  |              |         |           
|Jack Friedman(2)(3)                           |  |              | 0       |            |  |  | * | 
|Stephen G. Berman(2)(3)                       |  |              | 0       |            |  |  | * | 
|Joel M. Bennett(2)                            |  |              | 0       |            |  |  | * | 
|David C. Blatte(3)                            |  |              | 0       |            |  |  | * | 
|Robert E. Glick(3)                            |  |              | 0       |            |  |  | * | 
|Michael G. Miller(3)                          |  |              | 0       |            |  |  | * | 
|Murray L. Skala(3)                            |  |              | 0       |            |  |  | * | 
|Joel Handel(3)(4)                             |  |              | 73,476  |            |  |  | * | 
|Dan Almagor(3)(5)                             |  |              | 30,000  |            |  |  | * | 
|Directors and officers as a group (9 persons) |  |              | 103,476 |            |  |  | * | 



---



|    |                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The address of Toymaxs directors is 22619
    Pacific Coast Highway, Malibu, California 90265.                                                                                                                                                                        
|   
|(2) | Serves as an executive officer of Toymax. None of
    Toymaxs executive officers own Toymax stock or have
    employment agreements with Toymax. All of Toymaxs
    executive officers are executive officers of JAKKS and have
    employment agreements with JAKKS.
|   
|(3) | Serves as a director of Toymax.                                                                                                                                                                                                                                        
|   
|(4) | Includes 73,476 options that will become
    exercisable upon the earlier of the effective date of the merger
    and September 30, 2002.                                                                                                                              
|   
|(5) | Includes 30,000 options that will become
    exercisable upon the earlier of the effective date of the merger
    and September 30, 2002.                                                                                                                              
|   
|*   | Represents less than 1%.                                                                                                                                                                                                                                               

JAKKS owns approximately 66.8% of Toymaxs
common stock. JAKKS also controls the Toymax board of directors
with six members of the Toymax board of directors also being
members of the JAKKS board of directors and/or officers of
JAKKS. Those six individuals owe fiduciary duties to JAKKS and
its stockholders and each of them also owns securities of JAKKS.

20



---



##### Table of Contents



Joel Handel, one of Toymaxs directors who
is not an employee, director or officer of JAKKS, is a partner
in the law firm of Brown Raysman Millstein Felder & Steiner,
LLP which provided approximately $905,540 of legal services to
Toymax during Toymaxs fiscal year ended March 31,
2002.

Dan Almagor, one of Toymaxs directors who
is not an employee, director or officer of JAKKS, is a principal
in an investment banking firm that received approximately
$700,000 from Toymax for services rendered thereby in connection
with the stock purchase agreement and which firm is entitled to
receive an additional approximately $300,000 from Toymax upon
completion of the merger.




PART IV




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

(a) The following documents are filed as
part of this report:

|   |  |                                                                                                             |  |      |     | 
|-- |  | ----------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|   |  |                                                                                                             |  | Page
|   |  |                                                                                                             |  |     
|1. |  | Financial Statements                                                                                        |  |      |     | 
|   |  | Report of independent certified public accountants                                                          |  |      | F-2 | 
|   |  | Consolidated financial statements:                                                                          |  |      |     | 
|   |  | Balance sheets as of March 31,
    2000 and 2001                                                            |  |      | F-3 | 
|   |  | Statements of operations for the
    three years in the period ended March 31, 2001                         |  |      | F-4 | 
|   |  | Statements of stockholders
    equity for the three years in the period ended March 31,
    2001           |  |      | F-5 | 
|   |  | Statements of cash flows for the
    three years in the period ended March 31, 2001                         |  |      | F-6 | 
|   |  | Notes to consolidated financial
    statements                                                              |  |      | F-7 | 
|2. |  | Financial Statement Schedules                                                                               |  |      |     | 
|   |  | Report of independent certified public
    accountants on the Financial Statement Schedule                  |  |      | S-1 | 
|   |  | Schedule  Valuation and Qualifying
    Accounts for the three years in the period ended March 31,
    2001 |  |      | S-2 | 



| |                
| | ---------------
| | 3.     Exhibits

The following Exhibits are filed herewith and
made a part hereof:

| |             |  |  |                                                                                                                                                               
| | ----------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ##2.1       |  |  | First Amendment to Asset Purchase Agreement dated
    April 5, 2000 between the Company, Funnoodle (H.K.) Limited
    and Kidpower Inc. and James P. ORourke.
| | *3.1(a)     |  |  | Amended and Restated Certificate of Incorporation
    of the Registrant.                                                                                      
| | *3.1(b)     |  |  | Amendment to Amended and Restated Certificate of
    Incorporation of the Registrant.                                                                         
| | *3.2        |  |  | By-Laws of the Registrant.                                                                                                                                    
| | *4.1        |  |  | Specimen Stock Certificate for shares of Common
    Stock.                                                                                                    
| | *4.2        |  |  | Form of Representatives Warrant Agreement
    including Form of Redeemable Warrant Certificate.                                                              
| | ####4.3     |  |  | Amended and Restated 1997 Stock Option Plan.                                                                                                                  
| | *10.1       |  |  | Form of 1997 Stock Option Plan.                                                                                                                               
| | *10.2       |  |  | Executive Bonus Plan.                                                                                                                                         
| | *10.3(a)    |  |  | Agreement of Lease of the Companys offices
    at 125 E. Bethpage Road, Plainview, New York.                                                                 
| | ****10.3(b) |  |  | Amendment to Lease of the Companys offices
    at 125 E. Bethpage Road, Plainview, New York.                                                                 

21



---



##### Table of Contents



| |              |  |  |                                                                                                                                                                                                   
| | ------------ |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ##10.4       |  |  | Lease of the Companys showroom at
    200 Fifth Avenue, New York, New York.                                                                                                                      
| | #10.5        |  |  | Tenancy Agreement between Petergrand Limited and
    Toymax (H.K.) Limited for the Companys showroom at
    Concordia Plaza, No. 1 Science Museum Road, Tsimshatsui
    East, Kowloon, Hong Kong.
| | *10.6(a)     |  |  | Agency Agreement dated April 1, 1997,
    between the Company and Tai Nam.                                                                                                                        
| | ****10.6(b)  |  |  | Second Amendment to the Agency Agreement dated
    April 1, 1999, between the Company and Tai Nam.                                                                                                
| | ***10.7(a)   |  |  | Credit Facility Agreement dated February 3,
    1999 between the Company and State Street Bank and Trust Company
    and Congress Talcott Corporation.                                            
| | *10.8        |  |  | Security Agreement with State Street dated
    June 17, 1997.                                                                                                                                     
| | *10.9(a)     |  |  | Factoring Agreement dated June 4, 1991
    between the Company and Congress Talcott Corporation, as amended.                                                                                      
| | ##10.9(b)    |  |  | Amendment to the Collection Factoring Agreement
    between the Company and The CIT Group/ Commercial Services,
    Inc.                                                                          
| | *10.11       |  |  | Form of Employment Agreement with Steven
    Lebensfeld.                                                                                                                                          
| | 10.11(a)     |  |  | Amended and Restated Employment Agreement with
    Steven A. Lebensfeld, dated January 1, 2000.                                                                                                   
| | *10.12       |  |  | Form of Employment Agreement with Harvey Goldberg.                                                                                                                                                
| | 10.12(a)     |  |  | Amended and Restated Employment Agreement with
    Harvey Goldberg, dated January 1, 2000.                                                                                                        
| | *10.13       |  |  | Form of Employment Agreement with Kenneth Price.                                                                                                                                                  
| | 10.13(a)     |  |  | Amended and Restated Employment Agreement with
    Kenneth Price, dated January 1, 2000.                                                                                                          
| | 10.13(b)     |  |  | Modification of Employment Agreement with Kenneth
    Price, dated February 16, 2000.                                                                                                             
| | *10.14       |  |  | Form of Employment Agreement with Carmine Russo.                                                                                                                                                  
| | 10.14(a)     |  |  | Amended and Restated Employment Agreement with
    Carmine Russo, dated January 1, 2000.                                                                                                          
| | 10.14(b)     |  |  | Amended and Restated Employment Agreement with
    Carmine Russo, dated February 16, 2000.                                                                                                        
| | **10.15      |  |  | Form of Employment Agreement with Andrew Stein.                                                                                                                                                   
| | **10.16      |  |  | Form of Employment Agreement with William A.
    Johnson, Jr.                                                                                                                                     
| | 10.16(a)     |  |  | Amended and Restated Employment Agreement with
    William A. Johnson, Jr., dated January 1, 2000.                                                                                                
| | *10.17(a)    |  |  | Form of Manufacturing Agreement between the
    Company, Tai Nam and Jauntiway.                                                                                                                   
| | ****10.17(b) |  |  | Amendment to Manufacturing Agreement dated
    April 1, 1999, between the Company, Tai Nam and Jauntiway.                                                                                         
| | *10.18       |  |  | Form of Amendment to Agency Agreement between the
    Company and Tai Nam.                                                                                                                        
| | #10.19       |  |  | Management Agreement made as of November 30,
    1999, between Sun Master Investment Limited and Kidpower, Inc.                                                                                   
| | ##10.20      |  |  | Form of Employment Agreement with Barry Shapiro.                                                                                                                                                  
| | ##10.21      |  |  | Agency Agreement dated March 24, 2000,
    between Monogram International Inc., Monogram Products (H.K.)
    Limited and Tai Nam.                                                                 
| | ##10.22      |  |  | First Addendum to Loan Agreement, dated
    March 28, 2000, by and among Monogram Acquisition, Inc.,
    Monogram Acquisition 1, LLC and SunTrust Bank, joined by the
    Company.                
| | ##10.23      |  |  | Receivables Servicing Agreement dated,
    April 28, 2000 between Funnoodle (H.K.) Ltd. and Kidpower,
    Inc., and The CIT Group/ Commercial Services, Inc.                                      

22



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##### Table of Contents



| |          |  |  |                                                                                                                                                                                                                              
| | -------- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ###10.24 |  |  | Financing Agreement dated, December 27,
    2000, among Toymax Inc. Go Fly A Kite, Inc., Monogram
    International, Inc. and Funnoodle, Inc. and The CIT Group/
    Commercial Services, Inc. and Fleet Capital Corporation.
| | ##21.1   |  |  | List of Subsidiaries of the Registrant.                                                                                                                                                                                      
| | 23.1     |  |  | Consent of Independent Certified Public
    Accountants (Filed herewith)                                                                                                                                                     



---



|     |                                                                                                                             
|---- | ----------------------------------------------------------------------------------------------------------------------------
|*    | Incorporated by reference to the
    Registrants Registration Statement on Form S-1
    (No. 333-33409).                   
|    
|**   | Incorporated by reference to the
    Registrants Annual Report on Form 10-K for the year
    ended March 31, 1998.         
|    
|***  | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended December 31, 1998.
|    
|**** | Incorporated by reference to the
    Registrants Annual Report on Form 10-K for the year
    ended March 31, 1999.         
|    
|#    | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended December 31, 1999.
|    
|##   | Incorporated by reference to the
    Registrants Annual Report on Form 10-K for the year
    ended March 31, 2000.         
|    
|###  | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended December 31, 2000.
|    
|#### | Incorporated by reference to the
    Registrants Registration Statement on Form S-8
    (No. 333-54522).                   

(b) Reports on Form 8-K

We filed a Current Report on Form 8-K on the
following dates: (i) February 19, 2002, announcing the
sale of our Monogram subsidiaries to V2 Development Company
Ltd, (ii) February 22, 2002 announcing the merger with
JAKKS and the sale of our common stock by certain principal
stockholders and (iii) March 19, 2002, announcing
JAKKS acquiring control of our company.

23



---



##### Table of Contents






SIGNATURES

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



| |                           
| | --------------------------
| | TOYMAX INTERNATIONAL, INC.
| | (Registrant)              



| |     |                  
| | --- | -----------------
| | By: | /s/ JACK FRIEDMAN

| |                        
| | -----------------------
| |                        
| | Jack Friedman          
| | Chief Executive Officer

Dated: June 28, 2002

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

|                                       |  |                                                                                            |  |               |  | 
|-------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | ------------- |  | 
|                                       |  |                                                                                            |  |              
|Signature                              |  | Title                                                                                      |  | Date         
|                                       |  |                                                                                            |  |              
|                                      
|/s/ JACK FRIEDMANJack Friedman         |  | Chief Executive Officer and Director                                                       |  | June 28, 2002
|                                      
|/s/ STEPHEN G. BERMANStephen G. Berman |  | President and Director                                                                     |  | June 28, 2002
|                                      
|/s/ JOEL M. BENNETTJoel M. Bennett     |  | Chief Financial Officer and Treasurer (Principal
    Financial and
    Accounting Officer) |  | June 28, 2002
|                                      
|/s/ DAN ALMAGORDan Almagor             |  | Director                                                                                   |  | June 28, 2002
|                                      
|/s/ DAVID C. BLATTEDavid C. Blatte     |  | Director                                                                                   |  | June 28, 2002
|                                      
|/s/ ROBERT E. GLICKRobert E. Glick     |  | Director                                                                                   |  | June 28, 2002
|                                      
|/s/ JOEL M. HANDELJoel M. Handel       |  | Director                                                                                   |  | June 28, 2002
|                                      
|/s/ MICHAEL G. MILLERMichael G. Miller |  | Director                                                                                   |  | June 28, 2002
|                                      
|/s/ MURRAY L. SKALAMurray L. Skala     |  | Director                                                                                   |  | June 28, 2002

24



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##### Table of Contents



INDEX TO FINANCIAL EXHIBITS

CONSOLIDATED FINANCIAL STATEMENTS OF TOYMAX
INTERNATIONAL INC.

|                                                                                                               |  |    
|-------------------------------------------------------------------------------------------------------------- |  | ---
|FINANCIAL STATEMENTS                                                                                           |  |    
|Report of Independent Certified Public Accountants                                                             |  | F-2
|Consolidated Balance Sheets as of March 31,
    2001 and 2002                                                  |  | F-3
|Consolidated Statements of Operations for the
    three year period ended March 31, 2002                       |  | F-4
|Consolidated Statements of Stockholders
    Equity for the three year period ended March 31, 2002             |  | F-5
|Consolidated Statements of Cash Flows for the
    three year period ended March 31, 2002                       |  | F-6
|Notes to Consolidated Financial Statements                                                                     |  | F-7
|                                                                                                              
|FINANCIAL STATEMENT SCHEDULES                                                                                  |  |    
|Report of independent certified public
    accountants on the Financial Statement Schedule                     |  | S-1
|Schedule II  Valuation and Qualifying
    Accounts for the three years in the period ended March 31,
    2002 |  | S-2

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS

The Board of Directors and Stockholders of

Toymax International, Inc.


We have audited the accompanying consolidated
balance sheets of Toymax International, Inc. and Subsidiaries as
of March 31, 2001 and 2002, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the three years in the period ended
March 31, 2002. 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
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Toymax International, Inc.
and Subsidiaries at March 31, 2001 and 2002, and the
results of their operations and their cash flows for each of the
three years in the period ended March 31, 2002, in
conformity with accounting principles generally accepted in the
United States of America.

BDO Seidman, LLP

New York, New York


May 8, 2002


F-2



---



##### Table of Contents



TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES







CONSOLIDATED BALANCE SHEETS


|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |             |            | 
|-------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------- | ---------- | ---------- | - | ---------- | ----------- | ---------- | 
|                                                                                             |                                                                                                                       |                           
|                                                                                             |                                                                                                                       | March 31,                 
|                                                                                             |                                                                                                                       |                           
|                                                                                             |                                                                                                                       | 2001                       |            | 2002      
|                                                                                             |                                                                                                                       |                            |            |           
|Assets                                                                                      
|Current:                                                                                     |                                                                                                                       |                            |            |            |            |   |            |            
|                                                                                             | Cash and cash equivalents                                                                                             |                            | $          | 1,718,754  |            |   | $          | 940,136     |           
|                                                                                             | Due from Factor                                                                                                       |                            |            | 9,241,280  |            |   |            | 9,084,009   |           
|                                                                                             | Accounts receivable, less allowance for possible
    losses of $476,000 and $341,000                                  |                            |            | 6,668,456  |            |   |            | 3,750,699   |           
|                                                                                             | Inventories                                                                                                           |                            |            | 9,220,010  |            |   |            | 8,954,348   |           
|                                                                                             | Prepaid expenses and other current assets                                                                             |                            |            | 3,526,569  |            |   |            | 1,233,352   |           
|                                                                                             | Assets of discontinued operations                                                                                     |                            |            | 4,917,113  |            |   |            |            |           
|                                                                                             | Income tax refunds receivable                                                                                         |                            |            | 2,236,624  |            |   |            | 2,405,741   |           
|                                                                                             | Deferred income taxes                                                                                                 |                            |            | 1,966,948  |            |   |            | 648,612     |           
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            
|                                                                                             |                                                                                                                       | Total current assets       |            |            | 39,495,754 |   |            |             | 27,016,897 | 
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            
|Property and equipment, net                                                                  |                                                                                                                       |                            | 4,805,925  |            |            |   | 1,533,625  |            
|Property, equipment and other assets of
    discontinued operations, net                     |                                                                                                                       |                            | 894,868    |            |            |   |           |            
|Deferred income taxes                                                                        |                                                                                                                       |                            | 2,168,509  |            |            |   | 10,470,003 |            
|Goodwill, net of accumulated amortization of
    $1,984,367                                  |                                                                                                                       |                            | 14,497,309 |            |            |   | 15,739,482 |            
|Other assets                                                                                 |                                                                                                                       |                            | 7,225,227  |            |            |   | 1,045,984  |            
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            
|                                                                                             |                                                                                                                       | $                          | 69,087,592 |            |            | $ | 55,805,991 |            
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            
|Liabilities and Stockholders
    Equity                                                    
|Current:                                                                                     |                                                                                                                       |                            |            |            |            |   |            |            
|                                                                                             | Bank credit facility                                                                                                  |                            | $          | 9,971,578  |            |   | $          |            |           
|                                                                                             | Accounts payable                                                                                                      |                            |            | 7,290,912  |            |   |            | 6,643,487   |           
|                                                                                             | Accrued expenses                                                                                                      |                            |            | 3,649,697  |            |   |            | 6,203,858   |           
|                                                                                             | Accrued rebates and allowances                                                                                        |                            |            | 2,490,481  |            |   |            | 11,234,533  |           
|                                                                                             | Due to affiliates                                                                                                     |                            |            | 6,273,154  |            |   |            | 13,404,492  |           
|                                                                                             | Current portion of long-term obligations                                                                              |                            |            | 27,926     |            |   |            | 14,790      |           
|                                                                                             | Current liabilities of discontinued operations                                                                        |                            |            | 1,090,704  |            |   |            | 406,555     |           
|                                                                                             | Income taxes payable                                                                                                  |                            |            | 1,008,062  |            |   |            | 3,262,417   |           
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            
|                                                                                             |                                                                                                                       | Total current liabilities  |            |            | 31,802,514 |   |            |             | 41,170,132 | 
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            
|Long-term obligations                                                                        |                                                                                                                       |                            | 1,211,566  |            |            |   |           |            
|                                                                                             |                                                                                                                       | Total liabilities          |            |            | 33,014,080 |   |            |             | 41,170,132 | 
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            
|Minority interest                                                                            |                                                                                                                       |                            | 479,882    |            |            |   |           |            
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            
|Commitments and contingencies                                                                |                                                                                                                       |                            |            |            |            |   |            |            
|Stockholders Equity                                                                         |                                                                                                                       |                            |            |            |            |   |            |            
|Preferred stock, par value $.01 per share;
    5,000,000 shares authorized; none outstanding |                                                                                                                       |                            |           |            |            |   |           |            
|                                                                                             | Common stock, par value $.01 per share;
    50,000,000 shares authorized; 12,166,441 and 12,316,241 shares
    issued |                            |            | 121,664    |            |   |            | 123,162     |           
|                                                                                             | Additional paid-in capital                                                                                            |                            |            | 27,144,942 |            |   |            | 30,079,944  |           
|                                                                                             | Retained earnings (deficit)                                                                                           |                            |            | 8,520,065  |            |   |            | (15,341,692 | )         
|                                                                                             | Treasury stock, 35,000 and 66,200 shares at cost                                                                      |                            |            | (177,889   | )          |   |            | (210,403    | )         
|                                                                                             | Accumulated other comprehensive income                                                                                |                            |            | (15,152    | )          |   |            | (15,152     | )         
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            
|                                                                                             |                                                                                                                       | Total stockholders equity |            |            | 35,593,630 |   |            |             | 14,635,859 | 
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            
|                                                                                             |                                                                                                                       | $                          | 69,087,592 |            |            | $ | 55,805,991 |            
|                                                                                             |                                                                                                                       |                            |            |            |            |   |            |            

See accompanying notes to consolidated financial
statements.

F-3



---



##### Table of Contents






TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |             |  
|-------------------------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------- | ----------- | ---------- | - | ---- | ----------- | ---------- | - | - | ----------- | ----------- | -
|                                                               |                                                                                         |                     
|                                                               |                                                                                         | Year Ended March 31,
|                                                               |                                                                                         |                     
|                                                               |                                                                                         | 2000                 |             | 2001       |   | 2002
|                                                               |                                                                                         |                      |             |            |   |     
|Net sales                                                      |                                                                                         | $                    | 109,864,677 |            |   | $    | 115,151,485 |            |   | $ | 94,852,252  |            
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|Costs and expenses                                             |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|                                                               | Cost of goods sold                                                                      |                      |             | 75,516,553 |   |      |             | 72,769,988 |   |   |             | 71,424,452  |  
|                                                               | Selling and administrative (including
    restructuring charges in 2002 of $15,600,000) |                      |             | 38,220,075 |   |      |             | 37,718,929 |   |   |             | 49,760,442  |  
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|                                                               |                                                                                         |                      | 113,736,628 |            |   |      | 110,488,917 |            |   |   | 121,184,894 |            
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|                                                               | Operating income (loss)                                                                 |                      |             | (3,871,951 | ) |      |             | 4,662,568  |   |   |             | (26,332,642 | )
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|Other income (expenses):                                       |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|                                                               | Other income, net                                                                       |                      |             | 853,041    |   |      |             | 567,065    |   |   |             | 349,071     |  
|                                                               | Interest income                                                                         |                      |             | 533,933    |   |      |             | 247,883    |   |   |             | 157,188     |  
|                                                               | Interest expense                                                                        |                      |             | (1,069,742 | ) |      |             | (1,133,129 | ) |   |             | (1,135,391  | )
|                                                               | Equity in income (loss) of joint venture                                                |                      |             | 289,768    |   |      |             | (699,500   | ) |   |             |            |  
|                                                               | Write-off of investment in and advances to joint
    venture                            |                      |             |           |   |      |             | (1,859,906 | ) |   |             |            |  
|                                                               | Finance charges                                                                         |                      |             | (709,127   | ) |      |             | (668,925   | ) |   |             | (963,877    | )
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|                                                               |                                                                                         |                      | (102,127    | )          |   |      | (3,546,512  | )          |   |   | (1,593,009  | )          
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|Income (loss) before income tax expense (benefit)              |                                                                                         |                      | (3,974,078  | )          |   |      | 1,116,056   |            |   |   | (27,925,651 | )          
|Income tax expense (benefit)                                   |                                                                                         |                      | (2,206,877  | )          |   |      | 1,087,477   |            |   |   | (7,499,176  | )          
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|Income (loss) from continuing operations                       |                                                                                         |                      | (1,767,201  | )          |   |      | 28,579      |            |   |   | (20,426,475 | )          
|Loss from discontinued operations                              |                                                                                         |                      | (134,159    | )          |   |      | (9,776,209  | )          |   |   | (3,935,282  | )          
|Gain on disposal of discontinued operations                    |                                                                                         |                      |            |            |   |      |            |            |   |   | 500,000     |            
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|Net loss                                                       |                                                                                         | $                    | (1,901,360  | )          |   | $    | (9,747,630  | )          |   | $ | (23,861,757 | )          
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|Basic and diluted loss per share
    from:                     |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|                                                               | Continuing operations                                                                   |                      | $           | (0.17      | ) |      | $           |           |   |   | $           | (1.69       | )
|                                                               | Discontinued operations                                                                 |                      |             | (0.01      | ) |      |             | (0.86      | ) |   |             | (0.28       | )
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|                                                               | Basic and diluted loss per share                                                        |                      | $           | (0.18      | ) |      | $           | (0.86      | ) |   | $           | (1.97       | )
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            
|Shares used in computing basic and diluted loss
    per share: |                                                                                         |                      | 10,596,677  |            |   |      | 11,280,804  |            |   |   | 12,116,843  |            
|                                                               |                                                                                         |                      |             |            |   |      |             |            |   |   |             |            

See accompanying notes to consolidated financial
statements.

F-4



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##### Table of Contents



TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                           |  |              |            |            |  |          |         |          |  |               |            |               |  |        |             |   |  |   |          |   |  |   |         |   |  |   |             |  
|------------------------------------------ |  | ------------ | ---------- | ---------- |  | -------- | ------- | -------- |  | ------------- | ---------- | ------------- |  | ------ | ----------- | - |  | - | -------- | - |  | - | ------- | - |  | - | ----------- | -
|                                           |  |              |            |            |  |          |         |          |  | Accumulated   |            |              
|                                           |  | Common Stock |            | Additional |  |          |         |          |  | Other         |            | Total        
|Three Years Ended                          |  |              |            | Paid-in    |  | Retained |         | Treasury |  | Comprehensive |            | Stockholders
|March 31, 2002                             |  | Shares       |            | Amount     |  | Capital  |         | Earnings |  | Stock         |            | Loss          |  | Equity
|                                           |  |              |            |            |  |          |         |          |  |               |            |               |  |       
|Balance, April 1, 1999                     |  |              | 10,605,000 |            |  | $        | 106,050 |          |  | $             | 23,059,355 |               |  | $      | 20,169,055  |   |  | $ |         |   |  | $ | (15,152 | ) |  | $ | 43,319,308  |  
|Issuance of common stock purchase warrants |  |              |           |            |  |          |        |          |  |               | 61,201     |               |  |        |            |   |  |   |         |   |  |   |        |   |  |   | 61,201      |  
|Issuance of common stock                   |  |              | 28,108     |            |  |          | 281     |          |  |               | (281       | )             |  |        |            |   |  |   |         |   |  |   |        |   |  |   | 0           |  
|Purchase of treasury stock                 |  |              |           |            |  |          |        |          |  |               |           |               |  |        |            |   |  |   | (177,889 | ) |  |   |        |   |  |   | (177,889    | )
|Net loss                                   |  |              |           |            |  |          |        |          |  |               |           |               |  |        | (1,901,360  | ) |  |   |         |   |  |   |        |   |  |   | (1,901,360  | )
|                                           |  |              |            |            |  |          |         |          |  |               |            |               |  |        |             |   |  |   |          |   |  |   |         |   |  |   |             |  
|Balance, March 31, 2000                    |  |              | 10,633,108 |            |  |          | 106,331 |          |  |               | 23,120,275 |               |  |        | 18,267,695  |   |  |   | (177,889 | ) |  |   | (15,152 | ) |  |   | 41,301,260  |  
|Issuance of common stock                   |  |              | 1,533,333  |            |  |          | 15,333  |          |  |               | 4,024,667  |               |  |        |            |   |  |   |         |   |  |   |        |   |  |   | 4,040,000   |  
|Net loss                                   |  |              |           |            |  |          |        |          |  |               |           |               |  |        | (9,747,630  | ) |  |   |         |   |  |   |        |   |  |   | (9,747,630  | )
|                                           |  |              |            |            |  |          |         |          |  |               |            |               |  |        |             |   |  |   |          |   |  |   |         |   |  |   |             |  
|Balance, March 31, 2001                    |  |              | 12,166,441 |            |  |          | 121,664 |          |  |               | 27,144,942 |               |  |        | 8,520,065   |   |  |   | (177,889 | ) |  |   | (15,152 | ) |  |   | 35,593,630  |  
|Issuance of common stock                   |  |              | 149,800    |            |  |          | 1,498   |          |  |               | 235,002    |               |  |        |            |   |  |   |         |   |  |   |        |   |  |   | 236,500     |  
|Purchase of treasury stock                 |  |              |           |            |  |          |        |          |  |               |           |               |  |        |            |   |  |   | (32,514  | ) |  |   |        |   |  |   | (32,514     | )
|Stock option compensation                  |  |              |           |            |  |          |        |          |  |               | 2,700,000  |               |  |        |            |   |  |   |         |   |  |   |        |   |  |   | 2,700,000   |  
|Net loss                                   |  |              |           |            |  |          |        |          |  |               |           |               |  |        | (23,861,757 | ) |  |   |         |   |  |   |        |   |  |   | (23,861,757 | )
|                                           |  |              |            |            |  |          |         |          |  |               |            |               |  |        |             |   |  |   |          |   |  |   |         |   |  |   |             |  
|Balance, March 31, 2002                    |  |              | 12,316,241 |            |  | $        | 123,162 |          |  | $             | 30,079,944 |               |  | $      | (15,341,692 | ) |  | $ | (210,403 | ) |  | $ | (15,152 | ) |  | $ | 14,635,859  |  
|                                           |  |              |            |            |  |          |         |          |  |               |            |               |  |        |             |   |  |   |          |   |  |   |         |   |  |   |             |  

See accompanying notes to consolidated financial
statements.

F-5



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##### Table of Contents



TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |            |            |  
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ----------- | ----------- | ----------- | ---- | ---------- | ---------- | ----------- | - | ----------- | ---------- | ---------- | -
|                                                                                              |                                                                                                     |                                                                                       
|                                                                                              |                                                                                                     | Year Ended March 31,                                                                  
|                                                                                              |                                                                                                     |                                                                                       
|                                                                                              |                                                                                                     | 2000                                                                                   |             | 2001        |             | 2002
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |     
|Cash flows from operating
    activities:                                                     |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|Net loss                                                                                      |                                                                                                     | $                                                                                      | (1,901,360  | )           |             | $    | (9,747,630 | )          |             | $ | (23,861,757 | )         
|Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|                                                                                              | Depreciation and amortization                                                                       |                                                                                        |             | 4,370,271   |             |      |            | 5,599,269  |             |   |             | 2,732,313  |           
|                                                                                              | Minority interest                                                                                   |                                                                                        |             |            |             |      |            | (474,547   | )           |   |             | (479,882   | )         
|                                                                                              | Bad debts                                                                                           |                                                                                        |             | 53,749      |             |      |            | 364,966    |             |   |             | 355,768    |           
|                                                                                              | Equity in unconsolidated joint venture                                                              |                                                                                        |             | (289,768    | )           |      |            | 699,500    |             |   |             |           |           
|                                                                                              | Non-cash compensation                                                                               |                                                                                        |             | 61,201      |             |      |            |           |             |   |             | 2,700,000  |           
|                                                                                              | Write-off of barter credits                                                                         |                                                                                        |             |            |             |      |            |           |             |   |             | 3,973,624  |           
|                                                                                              | Non-cash revenue  barter credits                                                                   |                                                                                        |             | (377,433    | )           |      |            |           |             |   |             |           |           
|                                                                                              | Loss on disposal and write-off of property and
    equipment                                        |                                                                                        |             | 28,054      |             |      |            |           |             |   |             | 4,580,311  |           
|                                                                                              | Loss on impairment of asset valuation and
    write-off of investment and advances to joint venture |                                                                                        |             |            |             |      |            | 7,123,153  |             |   |             |           |           
|                                                                                              | Changes in deferred income taxes                                                                    |                                                                                        |             | (702,140    | )           |      |            | (551,000   | )           |   |             | (6,983,158 | )         
|                                                                                              | Changes in operating assets and liabilities:                                                        |                                                                                        |             |             |             |      |            |            |             |   |             |            |           
|                                                                                              |                                                                                                     | Due from Factor and accounts receivable                                                |             |             | (9,601,301  | )    |            |            | 9,206,230   |   |             |            | 4,689,024  |  
|                                                                                              |                                                                                                     | Due to/from affiliates                                                                 |             |             | 1,646,936   |      |            |            | 1,678,287   |   |             |            | (4,206,353 | )
|                                                                                              |                                                                                                     | Inventories                                                                            |             |             | (1,712,620  | )    |            |            | 860,288     |   |             |            | 1,996,484  |  
|                                                                                              |                                                                                                     | Prepaid expenses and other                                                             |             |             | (803,480    | )    |            |            | (696,585    | ) |             |            | 6,006,565  |  
|                                                                                              |                                                                                                     | Income tax refunds receivable                                                          |             |             | (1,843,533  | )    |            |            | 641,266     |   |             |            | (169,117   | )
|                                                                                              |                                                                                                     | Accounts payable and accruals                                                          |             |             | 10,164,566  |      |            |            | (12,784,638 | ) |             |            | 8,755,073  |  
|                                                                                              |                                                                                                     | Income taxes payable                                                                   |             |             | (112,373    | )    |            |            | (252,589    | ) |             |            | 2,254,355  |  
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|                                                                                              |                                                                                                     | Net cash provided by (used in) operating
    activities (continuing and discontinuing) |             |             | (1,019,231  | )    |            |            | 1,665,970   |   |             |            | 2,343,250  |  
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|Cash flows from investing
    activities:                                                     |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|                                                                                              | Acquisition of property and equipment                                                               |                                                                                        |             | (3,997,858  | )           |      |            | (2,997,987 | )           |   |             | (3,436,658 | )         
|                                                                                              | Proceeds from disposals of property and equipment                                                   |                                                                                        |             | 28,661      |             |      |            |           |             |   |             |           |           
|                                                                                              | Business acquisitions, investments and advances                                                     |                                                                                        |             | (19,316,841 | )           |      |            | (2,587,808 | )           |   |             | (1,242,173 | )         
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|                                                                                              |                                                                                                     | Net cash used in investing activities                                                  |             |             | (23,286,038 | )    |            |            | (5,585,795  | ) |             |            | (4,678,831 | )
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|Cash flows from financing
    activities:                                                     |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|                                                                                              | Increase (decrease) in bank credit facility                                                         |                                                                                        |             | 10,620,661  |             |      |            | (4,057,466 | )           |   |             | (9,971,578 | )         
|                                                                                              | Increase (decrease) in long-term obligations                                                        |                                                                                        |             | (62,707     | )           |      |            | 552,222    |             |   |             | (13,136    | )         
|                                                                                              | Increase in due to affiliate                                                                        |                                                                                        |             |            |             |      |            |           |             |   |             | 11,337,691 |           
|                                                                                              | Proceeds from issuance of common stock                                                              |                                                                                        |             |            |             |      |            | 4,600,000  |             |   |             | 236,500    |           
|                                                                                              | Purchase of treasury stock                                                                          |                                                                                        |             | (177,889    | )           |      |            |           |             |   |             | (32,514    | )         
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|                                                                                              |                                                                                                     | Net cash provided by financing activities                                              |             |             | 10,380,065  |      |            |            | 1,094,756   |   |             |            | 1,556,963  |  
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|Net decrease in cash and cash equivalents                                                     |                                                                                                     |                                                                                        | (13,925,204 | )           |             |      | (2,825,069 | )          |             |   | (778,618    | )         
|Cash and cash equivalents, beginning of year                                                  |                                                                                                     |                                                                                        | 18,469,027  |             |             |      | 4,543,823  |            |             |   | 1,718,754   |           
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|Cash and cash equivalents, end of year                                                        |                                                                                                     | $                                                                                      | 4,543,823   |             |             | $    | 1,718,754  |            |             | $ | 940,136     |           
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|Supplemental cash flow information:                                                           |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|                                                                                              | Interest paid                                                                                       |                                                                                        | $           | 1,222,412   |             |      | $          | 1,637,562  |             |   | $           | 1,106,269  |           
|                                                                                              | Income taxes paid                                                                                   |                                                                                        | $           | 992,891     |             |      | $          | 1,740,812  |             |   | $           | 97,905     |           
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|Supplemental disclosures of non-cash
    activities:                                          |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           
|                                                                                              | Issuance of common stock for license rights and
    services                                        |                                                                                        | $           |            |             |      | $          | 494,429    |             |   | $           |           |           
|                                                                                              | Capital leases entered into during the year                                                         |                                                                                        | $           | 64,754      |             |      | $          |           |             |   | $           |           |           
|                                                                                              |                                                                                                     |                                                                                        |             |             |             |      |            |            |             |   |             |           

See accompanying notes to consolidated financial
statements.

F-6



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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


March 31, 2000, 2001 and 2002


1.     Organization
and Summary of Significant Accounting Policies

On February 10, 2002, the Company entered
into two agreements with Jakks Pacific Inc. (Jakks)
for Jakks to acquire all of the outstanding shares of the
Company. In a two-step transaction, Jakks acquired approximately
66% of the Companys outstanding shares from the
Companys principal shareholders pursuant to a stock
purchase agreement effective March 11, 2002, and then will
acquire the remainder pursuant to a definitive merger agreement
that is subject to stockholder approval. For all Company shares,
Jakks will pay $4.50 per share consisting of $3 per share in
cash and the remainder in shares valued at $1.50 each.

The financial statements do not reflect any
adjustments related to a step-up in valuation or other
adjustments related to the change in control.

Principles of
consolidation

The consolidated financial statements include the
accounts of Toymax International, Inc. (Toymax and
the Company) and its subsidiaries after elimination
of intercompany accounts and transactions.

Business

The Companys operations consist principally
of its traditional toy products business and the businesses of
its acquired enterprises. The toy products business is conducted
by the Companys subsidiaries, Toymax, Inc.
(TMI) and Toymax (H.K.) Limited
(Toymax HK), which are involved in designing,
marketing and distributing toy products (collectively with the
Yaboom Ltd. joint venture, Toymax Brands).
The Companys other ventures include Go Fly A Kite, Inc.
(GFK), Funnoodle, Inc., and Funnoodle (H.K.)
Limited (together with Funnoodle (H.K.) Limited,
Funnoodle, formerly Sun Master Investment
Limited) (collectively Toymax Enterprises).
GFK and Funnoodle were formed to acquire the businesses
described in Note 3.

Effective November 30, 2001, the Company
sold the net assets of Monogram International, Inc. and Monogram
Products (H.K.) Limited (collectively
Monogram) and the Candy Planet division of
TMI to an entity controlled by David Chu, the former chairman of
the Company for $2.25 million. In March 2002, the Company,
in connection with its restructuring (Note 2), abandoned the
operations of Maxverse Interactive, Inc.
(Maxverse). Accordingly, the financial
statements have been adjusted to reflect Monogram, Candy Planet
and Maxverse as discontinued operations (Note 16).

Cash and cash
equivalents

Cash and cash equivalents includes investments
with original maturities of three months or less at the date of
acquisition. Such investments, consisting primarily of
investments in commercial paper, are stated at cost, which
approximates market value, and amounted to approximately
$0.6 million and $0.3 million at March 31, 2001 and
2002, respectively.

Inventories

Inventories are stated at the lower of cost
(first-in, first-out basis) or market value. Inventories consist
principally of purchased finished goods.

Property and
equipment

Property and equipment are stated at original
cost. Depreciation of machinery, equipment, molds and furniture
and fixtures is computed by the straight-line method over the
estimated useful lives of the assets.

F-7



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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Leasehold improvements are amortized by the
straight-line method over the shorter of their economic lives or
the terms of the leases.

Translation
of foreign currency financial statements

Assets and liabilities of foreign subsidiaries
are translated at year-end rates of exchange, and revenues and
expenses are translated at the average rates of exchange for the
year. Gains and losses resulting from translation are
accumulated in a separate component of stockholders
equity. Gains and losses resulting from foreign currency
transactions (transactions denominated in a currency other than
the functional currency) are included in net income or loss.
Substantially all of the Companys foreign subsidiaries are
located in Hong Kong. Since the value of the Hong Kong dollar
has been tied to the value of the United States dollar, foreign
currency fluctuations have been eliminated.

Income
taxes

Deferred income taxes are recognized based on the
differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements which will
result in taxable or deductible amounts in future years.
Further, the effects of enacted tax law or rate changes are
included in income as part of deferred tax expenses or benefits
in the period that includes the enactment date. A valuation
allowance is recognized if, in the opinion of management, it is
more likely than not that some portion of, or all of, a deferred
tax asset will not be realized.

Revenue
recognition

Sales are recorded upon shipment, free on board
from the point of shipment. The Company provides, as a reduction
of sales, for anticipated returns, allowances and other sales
incentives, based on known and anticipated claims.

Shipping and
handling costs

The consolidated financial statements reflect,
for all periods presented, the adoption of the classification
requirements pursuant to Emerging Issued Task Force
(EITF) 00-10, Accounting for
Shipping and Handling Fees and Costs, which was
effective in the Companys fourth quarter of fiscal 2001.
The Company reclassified income from freight charges to
customers to Net sales and warehousing , shipping
and handling costs to Cost of goods sold. Such
costs, net of the related revenue, were historically included in
Selling, general and administrative expenses.

Advertising

Advertising costs are charged to operations as
incurred and were approximately $13.3 million,
$9.5 million and $8.1 million for the years ended
March 31, 2000, 2001 and 2002, respectively.

Advertising costs associated with customer
benefit programs are accrued as the related revenues are
recognized and reflected in Net sales.

Royalties

Minimum guaranteed royalties, as well as
royalties in excess of minimum guarantees, are expensed based on
the sales of related products. The realizability of minimum
guaranteed royalties paid is evaluated by the Company based on
the projected sales of the related products.

F-8



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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Research and
development expenses

Research and development expenses are charged to
operations as incurred and are included in selling and
administrative expenses. Research and development expenses for
the years ended March 31, 2000, 2001 and 2002 were
approximately $4.2 million, $3.4 million and
$3.7 million, respectively.

Fair value of
financial instruments

The carrying amounts of certain financial
instruments, including cash, due from Factor, accounts
receivable, accounts payable and bank obligations, approximate
fair value as of March 31, 2001 and March 31, 2002
because of the relatively short-term maturity of these
instruments. Fair value of the amounts due to or from affiliates
cannot be readily determined because of the nature of the terms.

Accounting
for the impairment of long-lived assets

Long-lived assets, which include goodwill and
property and equipment, are evaluated for impairment when events
or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets.
When any such impairment exists, the related assets will be
written down to fair value. In fiscal 2001, the Company
recognized an impairment loss of approximately $1.9 million
related to the valuation of goodwill and the investment in and
advances to the Companys joint venture. See Note 2 for
impairment charges recorded in connection with the
Companys restructuring.

Goodwill

Goodwill represents the excess purchase price
paid over the fair market value of the net assets of the
acquired company. Goodwill was amortized over 10-15 years
on a straight-line basis prior to April 1, 2001. Commencing
fiscal 2002, amortization of goodwill ceased in accordance with
by Statement of Financial Accounting Standards
(SFAS) No. 142.

The carrying value of goodwill is based on
managements current assessment of recoverability.
Management evaluates recoverability using both objective and
subjective factors. Objective factors include managements
best estimates of projected future earnings, cash flows and
analysis of historical and recent sales and earnings trends.
Subjective factors include competitive analysis and the
Companys strategic focus.

Earnings
(loss) per share

Basic earnings per share includes no dilution and
is computed by dividing income available to common shareholders
by the weighted average number of common shares outstanding for
the period. Diluted earnings per share reflects, in periods in
which they have a dilutive effect, the effect of common shares
issuable upon exercise of stock options and warrants.

Options and warrants to purchase an aggregate of
2,738,620, 2,393,545 and 2,097,910 shares of common stock were
outstanding at March 31, 2000, 2001 and 2002, respectively,
at exercise prices ranging from $3.75 to $10.20 per share in
fiscal 2000, $1.34 to $8.63 per share in fiscal 2001, and $0.94
to $8.63 in fiscal 2002. Such options and warrants are not
included in the computation of diluted earnings per share
because they are anti-dilutive (Note 11).

Accounting
for stock based compensation

The Company accounts for its stock option awards
to employees under the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock
Issued to Employees.Under the intrinsic value based
method, compensation cost is the excess, if any, of the

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TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

quoted market price of the stock at the grant
date or other measurement date over the amount an employee must
pay to acquire the stock. The Company makes pro forma
disclosures of the net income and earnings per share as if the
fair value based method of accounting had been applied as
required by SFAS No. 123, Accounting for
Stock-Based Compensation.

The Financial Accounting Standards Board
(FASB) issued Interpretation
(FIN) No. 44, Accounting for
Certain Transactions Involving Stock Compensation. FIN
No. 44 clarifies the application of APB No. 25 for the
accounting consequences of various modifications of the terms of
a previously fixed stock option. Significant modifications to
the option terms could cause a charge to compensation as the
options are treated as variable options.

Use of
estimates

The preparation of the financial statements in
accordance with generally accepted accounting principles
requires management to make estimates and assumptions that
affect 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 reporting period. Among the more significant
estimates included in these consolidated financial statements
are the estimated allowance for doubtful accounts receivable and
accrued rebates and allowances and the realizability of
goodwill. Actual results could differ from those and other
estimates.

Concentration
of credit risks

Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally
of cash balances deposited in financial institutions which
exceed FDIC insurance limits, receivables due from Factor and
accounts receivable not sold to a factor.

The Company established an allowance for accounts
receivable based upon factors surrounding the credit risk of
specific customers historical trends and other
information. See Note 13 for information relating to the
concentration of sales to major customers.

Comprehensive
loss

Comprehensive loss refers to revenue, expenses,
gains and losses that under generally accepted accounting
principles are excluded from net loss, as these amounts are
recorded directly as an adjustment to shareholders equity.
The Companys comprehensive loss is comprised of foreign
currency translation adjustments. The comprehensive loss for the
three years ended March 31, 2002 is the same as the
reported net loss.

Recent
Accounting Standards

The FASB issued SFAS No. 141, Business
Combinations, and No. 142, Goodwill and
Intangible Assets in June 2001. SFAS No. 141 requires
the use of the purchase method of accounting and prohibits the
use of the pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001. SFAS
No. 141 also requires that the Company recognize acquired
intangible assets apart from goodwill if the acquired intangible
assets meet certain criteria. SFAS No. 141 applies to all
business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after
July 1, 2001. It also requires, upon adoption of SFAS
No. 142, that the Company reclassify, if necessary, the
carrying amounts of intangible assets and goodwill based on the
criteria of SFAS No. 141.

In April 2001, the Company elected to adopt SFAS
No. 142. SFAS No. 142 requires, among other things,
that companies no longer amortize goodwill, but instead test
goodwill for impairment at least annually. In addition, SFAS
No. 142 requires that the Company identify reporting units
for the purposes of assessing

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TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

potential future impairments of goodwill,
reassess the useful lives of other existing recognized
intangible assets, and cease amortization of intangible assets
with an indefinite useful life.

The Companys previous business combinations
were accounted for using the purchase method and as of
April 1, 2001, the net carrying amount of goodwill from
prior purchase transactions was approximately
$14.5 million. Annual amortization of this amount, which
ceased effective April 1, 2001, amounted to approximately
$1.5 million.

The effect of adoption of SFAS No. 142 on
the reported net loss for prior periods are as follows:

|                                                  |                          |                              |            |       |   |      |            |       |   |   |             |       |  
|------------------------------------------------- | ------------------------ | ---------------------------- | ---------- | ----- | - | ---- | ---------- | ----- | - | - | ----------- | ----- | -
|                                                  |                          |                             
|                                                  |                          | For the Year Ended March 31,
|                                                  |                          |                             
|                                                  |                          | 2000                         |            | 2001  |   | 2002
|                                                  |                          |                              |            |       |   |     
|Reported net loss                                 |                          | $                            | (1,901,360 | )     |   | $    | (9,747,630 | )     |   | $ | (23,861,757 | )    
|Amortization of goodwill, net of tax effect       |                          |                              | 638,666    |       |   |      | 1,114,111  |       |   |   |            |      
|                                                  |                          |                              |            |       |   |      |            |       |   |   |             |      
|Net loss, as adjusted                             |                          | $                            | (1,262,694 | )     |   | $    | (8,633,519 | )     |   | $ | (23,861,757 | )    
|                                                  |                          |                              |            |       |   |      |            |       |   |   |             |      
|Basic and diluted earnings per share:             |                          |                              |            |       |   |      |            |       |   |   |             |      
|                                                  | Reported net loss        |                              | $          | (0.18 | ) |      | $          | (0.86 | ) |   | $           | (1.97 | )
|                                                  | Amortization of goodwill |                              |            | .06   |   |      |            | .10   |   |   |             |      |  
|                                                  |                          |                              |            |       |   |      |            |       |   |   |             |      
|Basic and diluted earnings per share, as adjusted |                          | $                            | (0.12      | )     |   | $    | (0.76      | )     |   | $ | (1.97       | )    
|                                                  |                          |                              |            |       |   |      |            |       |   |   |             |      

In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the fair value
of a liability for an asset retirement obligation to be
recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 is effective for
fiscal years beginning after June 18, 2002. The adoption of this
statement will have no material impact on the financial
statements.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets. SFAS No. 144 requires that
those long-lived assets be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. Therefore,
discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that
have not yet occurred. The Company has elected to early adopt
SFAS No. 144 in the current fiscal year in connection with
its discontinued operations (Note 16).

Reclassifications

Certain March 31, 2000 and 2001 amounts were
reclassified to conform to the March 31, 2002 presentation.

2.     Restructuring

On March 11, 2002 Jakks Pacific, Inc.
acquired approximately 66% of the Company (Note 1). In
connection with that acquisition, the Company began a plan of
reorganization. Included in selling and administrative expenses
is approximately $15.6 million of restructuring charges.

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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the restructuring charge for the
year ended March 31, 2002 is as follows:

|                                    |  |                |            | 
|----------------------------------- |  | -------------- | ---------- | 
|                                    |  | March 31, 2002
|                                    |  |               
|Facility closure costs              |  | $              | 842,000    | 
|Employee termination benefits       |  |                | 1,400,000  | 
|Impairment of fixed assets (Note 5) |  |                | 2,263,000  | 
|Barter credit write-off (Note 6)    |  |                | 3,974,000  | 
|Stock option compensation (Note 11) |  |                | 2,700,000  | 
|Termination of agreements           |  |                | 2,200,000  | 
|Other                               |  |                | 2,221,000  | 
|                                    |  |                |            | 
|                                    |  | $              | 15,600,000 | 
|                                    |  |                |            | 

As a result of the acquisition, the Company
terminated certain of its employees, giving stay bonuses and
severance packages to 20 of its employees.

As a result of the acquisition, the Company
terminated various license agreements and its factor agreement
resulting in a charge. The Company also accrued for minimum
guarantees for royalties associated with discontinued product
lines. Included in accrued liabilities is approximately
$3.6 million related to the restructuring charge, of which
approximately $2.8 million is expected to be paid within
the next six months. The remaining $0.8 million related to
the facility lease, will be paid over the lease term expiring in
April 2004.

3.     Business
Acquisitions and Joint Ventures

In December 1998, the Company acquired
substantially all of the operating assets, business operations
and facilities of GFK. The aggregate maximum purchase price of
approximately $6.3 million consisted of up to
$5.9 million in cash and a non-interest bearing contingent
note and $0.4 million in related direct costs. A portion of
the purchase price, $1.3 million, was contingent upon the
achievement of certain operating results for the twelve months
ending August 31, 1999 and $150,000 was contingent upon the
achievement of certain operating results from the date of the
acquisition until August 31, 1999. Both contingencies were
incurred and paid in fiscal 2000. The acquisition has been
accounted for using the purchase method. The Company recorded
approximately $5.8 million of goodwill, including goodwill
related to the contingent payment of $1.5 million, for the
excess of the total purchase price over the fair value of the
net assets acquired.

In November 1999, the Company acquired the
Funnoodle product line from Kidpower, Inc.
(Kidpower), pursuant to an asset purchase agreement
dated October 25, 1999. The Funnoodle product line is a
highly recognized consumer brand of pool and backyard water
recreational products which include the original Funnoodle®
water toys, floating pool mats, lawn sprinkler toys and exercise
mats. The consideration for the acquisition was
$8.7 million paid in cash at the closing, the assumption of
certain commitments of Kidpower in an amount of $500,000, plus
up to $7.0 million payable to Kidpower after the closing if
certain contingencies occur through October 31, 2002. The
Company recorded approximately $8.1 million of goodwill for
the excess of the total purchase price over the fair value of
the net assets acquired. The funding for the acquisition was out
of the working capital of the Company. Based on the occurrence
of certain contingencies contained in the acquisition agreement,
the Company recorded and paid approximately $3.8 million as
additional goodwill through fiscal 2002.

In connection with the Funnoodle acquisition, the
Company entered into a management services agreement dated
November 30, 1999 with Kidpower (the Kidpower
Management Agreement). Pursuant to the Kidpower
Management Agreement, Kidpower will manage the day-to-day
operations with respect to the Funnoodle product line. Pursuant
to the Kidpower Management Agreement, a management fee of seven
percent (7%) of the cost of all finished goods with respect to
the Funnoodle product line is payable to

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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Kidpower. The Kidpower Management Agreement,
which has an initial term through November 15, 2002, is
subject to termination or renewal on an annual basis at the
Companys option. In August 2001, the Company terminated
the Kidpower Management Agreement.

In October 1999, the Company and a private
investor formed Yaboom Ltd. (Yaboom), a joint
venture. The Companys investment in Yaboom includes
$1.0 million for the equity ownership and $1.1 million
in non-interest bearing advances. Yaboom was formed to develop,
manufacture and market innovative high-tech consumer products,
which incorporate music and other intellectual property rights
from popular recording artists. Under the terms of the joint
venture, the Company, through a wholly-owned Hong Kong
subsidiary, and the private investor each own fifty percent of
Yaboom. The Company has accounted for the joint venture using
the equity method and intends to permanently reinvest the
earnings derived from the joint venture. Based on the
uncertainty of the operations, the Company recognized an
impairment in the value of the goodwill and investment in and
advances to Yaboom of approximately $1.9 million in fiscal
2001. The equity investment had no value at March 31, 2001
and 2002.

4.     Due From
Factor and Accounts Receivable

In the normal course of business, TMI and
Funnoodle sell substantially all of their accounts receivable,
without recourse, to the CIT Group, Inc. (the
Factor), and receive payment from the Factor
when the accounts are collected.

Effective April 1, 2002, the factoring
agreement was terminated.

Accounts receivable consists mainly of sales not
factored and amounts charged back by the Factor as a result of
disputes primarily relating to unearned discounts and damaged
shipments, net of allowances for possible losses.

5.     Property and
Equipment

Property and equipment consists of:

|                                                |  |           |            |           |  |              |            |  |  |  |     | 
|----------------------------------------------- |  | --------- | ---------- | --------- |  | ------------ | ---------- |  |  |  | --- | 
|                                                |  |           |            |          
|                                                |  | March 31, |            |          
|                                                |  |           |            | Estimated
|                                                |  | 2001      |            | 2002      |  | Useful Lives
|                                                |  |           |            |           |  |             
|Machinery, equipment and molds                  |  | $         | 14,829,209 |           |  | $            | 17,859,717 |  |  |  | 2-5 | 
|Furniture and fixtures                          |  |           | 593,854    |           |  |              | 610,027    |  |  |  | 5   | 
|Leasehold improvements                          |  |           | 1,067,038  |           |  |              | 1,059,754  |  |  |  | 2-8 | 
|                                                |  |           |            |           |  |              |            |  |  |  |     | 
|                                                |  |           | 16,490,101 |           |  |              | 19,529,498 |  |  |  |     | 
|Less: Accumulated depreciation and amortization |  |           | 11,684,176 |           |  |              | 17,995,873 |  |  |  |     | 
|                                                |  |           |            |           |  |              |            |  |  |  |     | 
|                                                |  | $         | 4,805,925  |           |  | $            | 1,533,625  |  |  |  |     | 
|                                                |  |           |            |           |  |              |            |  |  |  |     | 

Depreciation and amortization of property and
equipment charged to operations were approximately
$2.7 million, $3.5 million and $2.7 million in
2000, 2001 and 2002, respectively. The Company recorded an
impairment charge of $2.3 million on molds and other fixed
assets that will not be utilized as a result of the acquisition
by Jakks (Note 2).

6.     Prepaid
Expenses and Other Current Assets

In December 1998 and April 1999, the Company
entered into agreements with a broker of media advertising,
whereby the Company through the Toymax Brands segment sold and
transferred title to merchandise of the Company having a fair
value of approximately $6.9 million in exchange for
approximately $8.7 million in trade credits. The Company
recorded a gross margin on this transaction of approximately

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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$3.2 million. The Company expensed the net
remaining prepaid advertising of approximately $4.0 million
in March 2002 which is not expected to be utilized as a result
of the acquisition by Jakks, which historically has not used
this type of advertising program (Note 2).

7.     Bank Credit
Facility

In December 2000, the Company replaced the Toymax
Inc. (TMI) and Go Fly A Kite, Inc. (GFK)
subsidiaries existing $30.0 million credit facility
and the Funnoodle $5.0 million line of credit with a
$40.0 million facility for all of its U.S. based
operating subsidiaries. Borrowings, which are subject to
availability according to a formula based on eligible accounts
receivable and inventory, bear interest at either the
lenders U.S. prime rate or LIBOR plus 2.50%. The
credit agreement, which expires in December 2003, is secured by
the accounts receivable and inventories of the Companys
domestic subsidiaries, as well as other properties, and is
guaranteed by Toymax. The agreement contains certain
restrictions relating to limitations on debt, certain
investments and the payment of dividends. The Agreement was
terminated by mutual consent in March 2002.

Effective April 2000, the Companys Toymax
HK subsidiary renewed its credit facility with The Hongkong and
Shanghai Banking Corporation Limited (Hongkong
Bank). The facility provides for a clean export loan
of $1,000,000 and the acceptance of an export letter of credit
guarantee for documents presented with discrepancies of up to
approximately $2.3 million. The facility, which is jointly
available to the Companys affiliates in Hong Kong, was
terminated by mutual consent in April 2002.

8.     Related Party
Transactions

The former majority stockholder of the Company
owns significant interests in several other companies, including
Tai Nam Industrial Company Limited (Tai Nam)
and Jauntiway Investments Limited
(Jauntiway). TMI and Toymax HK have purchased
the majority of their merchandise directly from Tai Nam. The
majority of the merchandise is manufactured in the Peoples
Republic of China (PRC) by Jauntiway.

The Company has significant transactions with Tai
Nam. These transactions include purchases of the majority of the
Companys and its subsidiarys merchandise and certain
sales of the subsidiarys products. Tai Nam has
occasionally provided extended payment terms for these purchases.

Prior to the Jakks acquisition (Note 1),
Toymax HK and TMI had an agency agreement with Tai Nam, which
provided for an agency fee of 7% on products purchased. The
agency agreement also requires Tai Nam to provide all
administrative services to Toymax HK.

In September 1997, the Company entered into a
manufacturing agreement with Tai Nam and Jauntiway. This
agreement provides, among other things, that the Company shall
not be required to provide a letter of credit or other security
to Tai Nam or Jauntiway in connection with its purchase orders.

GFK maintains some raw materials for
manufacturing but purchases the majority of its product from
manufacturers in the PRC and Taiwan based upon the
companys product specifications. Prior to the Jakks
acquisition, Tai Nam acted as GFKs agent in Hong Kong for
all products produced in the PRC pursuant to an agency agreement
dated September 1, 2000.

In April 2000, Funnoodle entered into an agency
agreement with Tai Nam, which provides for an agency fee of 7%
on products purchased.

Effective March 11, 2002, all agency
agreements were terminated.

In March 2002, Jakks advanced approximately
$11.3 million to the Company on a non-interest bearing
basis. The funds were used to retire bank and related party debt.

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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of balances and
transactions with affiliated companies:

|                   |                     |           |   |           |  |  |   |            | 
|------------------ | ------------------- | --------- | - | --------- |  |  | - | ---------- | 
|                   |                     |          
|                   |                     | March 31,
|                   |                     |          
|                   |                     | 2001      |   | 2002     
|                   |                     |           |   |          
|Due to affiliates: |                     |           |   |           |  |  |   |           
|                   | Tai Nam             |           | $ | 6,273,154 |  |  | $ | 2,066,801  | 
|                   | Jakks Pacific, Inc. |           |   |          |  |  |   | 11,337,691 | 
|                   |                     |           |   |           |  |  |   |           

|                                |         |                      |   |            |  |      |   |            |  |  |   |            | 
|------------------------------- | ------- | -------------------- | - | ---------- |  | ---- | - | ---------- |  |  | - | ---------- | 
|                                |         |                     
|                                |         | Year Ended March 31,
|                                |         |                     
|                                |         | 2000                 |   | 2001       |  | 2002
|                                |         |                      |   |            |  |     
|Purchases from:                 |         |                      |   |            |  |      |   |            |  |  |   |           
|                                | Tai Nam |                      | $ | 56,257,427 |  |      | $ | 52,865,582 |  |  | $ | 52,418,056 | 
|                                |         |                      |   |            |  |      |   |            |  |  |   |           
|Sales to:                       |         |                      |   |            |  |      |   |            |  |  |   |           
|                                | Tai Nam |                      | $ | 475,803    |  |      | $ | 342,319    |  |  | $ | 197,557    | 
|                                |         |                      |   |            |  |      |   |            |  |  |   |           
|Mold purchases from:            |         |                      |   |            |  |      |   |            |  |  |   |           
|                                | Tai Nam |                      | $ | 2,275,530  |  |      | $ | 2,109,445  |  |  | $ | 2,195,349  | 
|                                |         |                      |   |            |  |      |   |            |  |  |   |           
|Agency fees charged by:         |         |                      |   |            |  |      |   |            |  |  |   |           
|                                | Tai Nam |                      | $ | 3,997,980  |  |      | $ | 3,443,280  |  |  | $ | 3,329,346  | 
|                                |         |                      |   |            |  |      |   |            |  |  |   |           
|Reimbursed expenses charged by: |         |                      |   |            |  |      |   |            |  |  |   |           
|                                | Tai Nam |                      | $ | 1,036,903  |  |      | $ | 15,066     |  |  | $ | 164,672    | 
|                                |         |                      |   |            |  |      |   |            |  |  |   |           

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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9.     Income
Taxes

The components of income (loss) before income tax
expense (benefit) and the related provision for income taxes
consist of the following:

|                                       |                     |      |            |            |   |      |           |           |   |   |             |             |  
|-------------------------------------- | ------------------- | ---- | ---------- | ---------- | - | ---- | --------- | --------- | - | - | ----------- | ----------- | -
|                                       |                     | 2000 |            | 2001       |   | 2002
|                                       |                     |      |            |            |   |     
|Income (loss) before income
    taxes: |                     |      |            |            |   |      |           |           |   |   |             |            
|                                       | Hong Kong           |      | $          | 3,614,605  |   |      | $         | (926,532  | ) |   | $           | 1,290,163   |  
|                                       | U.S.                |      |            | (7,588,683 | ) |      |           | 2,042,588 |   |   |             | (29,215,814 | )
|                                       |                     |      |            |            |   |      |           |           |   |   |             |            
|                                       |                     | $    | (3,974,078 | )          |   | $    | 1,116,056 |           |   | $ | (27,925,651 | )          
|                                       |                     |      |            |            |   |      |           |           |   |   |             |            
|Income tax expense (benefit):          |                     |      |            |            |   |      |           |           |   |   |             |            
|Current:                               |                     |      |            |            |   |      |           |           |   |   |             |            
|                                       | Hong Kong           |      | $          | 326,005    |   |      | $         | 291,251   |   |   | $           | 398,806     |  
|                                       | U.S. Federal        |      |            | (1,700,472 | ) |      |           | 462,287   |   |   |             | (1,008,787  | )
|                                       | U.S. State and City |      |            | (260,483   | ) |      |           | 184,938   |   |   |             | 93,963      |  
|                                       |                     |      |            |            |   |      |           |           |   |   |             |            
|                                       |                     | $    | (1,634,950 | )          |   | $    | 938,476   |           |   | $ | (516,018    | )          
|                                       |                     |      |            |            |   |      |           |           |   |   |             |            
|Deferred:                              |                     |      |            |            |   |      |           |           |   |   |             |            
|                                       | Hong Kong           |      | $          | 82,179     |   |      | $         |          |   |   | $           | 97,025      |  
|                                       | U.S. Federal        |      |            | (601,058   | ) |      |           | 348,815   |   |   |             | (6,913,878  | )
|                                       | U.S. State and City |      |            | (53,048    | ) |      |           | (199,814  | ) |   |             | (116,305    | )
|                                       |                     |      |            |            |   |      |           |           |   |   |             |            
|                                       |                     | $    | (571,927   | )          |   | $    | 149,001   |           |   | $ | (6,983,158  | )          
|                                       |                     |      |            |            |   |      |           |           |   |   |             |            
|Income tax expense (benefit)           |                     | $    | (2,206,877 | )          |   | $    | 1,087,477 |           |   | $ | (7,499,176  | )          
|                                       |                     |      |            |            |   |      |           |           |   |   |             |            

The income tax expense (benefit) varies from the
U.S. Federal statutory rate. The following reconciliation
shows the significant differences in the tax at statutory and
effective rates:

|                                                                   |  |                      |            |      |  |      |           |   |  |   |            |  
|------------------------------------------------------------------ |  | -------------------- | ---------- | ---- |  | ---- | --------- | - |  | - | ---------- | -
|                                                                   |  |                     
|                                                                   |  | Year Ended March 31,
|                                                                   |  |                     
|                                                                   |  | 2000                 |            | 2001 |  | 2002
|                                                                   |  |                      |            |      |  |     
|Federal income tax expense (benefit), at
    statutory rate of 34% |  | $                    | (1,351,187 | )    |  | $    | 379,459   |   |  | $ | (9,494,721 | )
|State income tax expense (benefit), net of
    federal tax effect  |  |                      | (206,930   | )    |  |      | 8,625     |   |  |   | (81,943    | )
|Increase in deferred tax valuation allowance                       |  |                      |           |      |  |      |          |   |  |   | 500,000    |  
|Non-deductible expenses                                            |  |                      | 48,710     |      |  |      | 110,900   |   |  |   | 280,248    |  
|Non-cash compensation                                              |  |                      |           |      |  |      |          |   |  |   | 918,000    |  
|Effect of differences in U.S. and Hong Kong
    statutory rates    |  |                      | (820,782   | )    |  |      | 606,272   |   |  |   | 379,240    |  
|Other                                                              |  |                      | 123,312    |      |  |      | (17,779   | ) |  |   |           |  
|                                                                   |  |                      |            |      |  |      |           |   |  |   |            |  
|Income tax expense (benefit)                                       |  | $                    | (2,206,877 | )    |  | $    | 1,087,477 |   |  | $ | (7,499,176 | )
|                                                                   |  |                      |            |      |  |      |           |   |  |   |            |  

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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of deferred tax assets/
(liabilities) are as follows:

|                          |                                                  |           |           |          |   |   |            |           |  
|------------------------- | ------------------------------------------------ | --------- | --------- | -------- | - | - | ---------- | --------- | -
|                          |                                                  |          
|                          |                                                  | March 31,
|                          |                                                  |          
|                          |                                                  | 2001      |           | 2002    
|                          |                                                  |           |           |         
|Deferred tax assets:      |                                                  |           |           |          |   |   |            |          
|Current:                  |                                                  |           |           |          |   |   |            |          
|                          | Reserve for sales allowances and possible losses |           | $         | 793,118  |   |   | $          | 457,466   |  
|                          | Inventory                                        |           |           | 629,320  |   |   |            | 812,566   |  
|                          | Accrued expenses                                 |           |           | 385,062  |   |   |            | 671,550   |  
|                          | Other                                            |           |           | 159,448  |   |   |            | 912,912   |  
|                          |                                                  |           |           |          |   |   |            |          
|                          |                                                  |           | 1,966,948 |          |   |   | 2,854,494  |          
|                          |                                                  |           |           |          |   |   |            |          
|Long term:                |                                                  |           |           |          |   |   |            |          
|                          | Barter credits                                   |           |           |         |   |   |            | 1,470,241 |  
|                          | Design costs                                     |           |           | 504,280  |   |   |            |          |  
|                          | Property and equipment                           |           |           | 317,245  |   |   |            | 303,338   |  
|                          | Goodwill, licenses and other intangibles         |           |           | 618,522  |   |   |            | 327,033   |  
|                          | Legal fees-trademarks                            |           |           | 501,527  |   |   |            | 1,442,768 |  
|                          | Federal net operating loss carryforwards         |           |           |         |   |   |            | 4,574,551 |  
|                          | State net operating loss carryforwards           |           |           | 425,676  |   |   |            | 941,956   |  
|                          |                                                  |           |           |          |   |   |            |          
|                          |                                                  |           | 2,367,250 |          |   |   | 9,059,887  |          
|                          |                                                  |           |           |          |   |   |            |          
|Total deferred tax assets |                                                  |           | 4,334,198 |          |   |   | 11,914,381 |          
|Less: Valuation allowance |                                                  |           |          |          |   |   | (500,000   | )        
|Deferred tax liabilities: |                                                  |           |           |          |   |   |            |          
|                          | Property and equipment                           |           |           | (198,741 | ) |   |            | (295,766  | )
|                          |                                                  |           |           |          |   |   |            |          
|Net deferred tax assets   |                                                  | $         | 4,135,457 |          |   | $ | 11,118,615 |          
|                          |                                                  |           |           |          |   |   |            |          

Deferred taxes result from temporary differences
between tax bases of assets and liabilities and their reported
amounts in the financial statements. The temporary differences
result from costs required to be capitalized for tax purposes by
the U.S. Internal Revenue Code, and certain items accrued
for financial reporting purposes in the year incurred but not
deductible for tax purposes until paid.

As of March 31, 2002, the Company has
federal and state net operating loss carryforwards of
$13.7 million and $31.4 million, respectively,
expiring through 2022. Due to the change in control, which
occurred during fiscal 2002, utilization of these losses to
offset future income may be limited under
IRC § 382. A valuation allowance has been
recorded related to the limited realization of state net
operating loss carryforwards. Based on Jakks ability to use the
carryforwards, the Company believes it is more likely than not
that these carryforwards will be utilized. Therefore, no further
allowance was deemed necessary.

10.     Capital
Stock

Stock
Repurchase Program

In May 1999, the Company announced that its Board
of Directors had approved the repurchase of up to
$2.0 million of Toymax common stock from time to time on
the open market, as well as through private transactions. The
timing of the stock repurchases and the total number of shares
repurchased will be determined by overall financial and market
conditions. The Companys credit facility restricts it from

F-17



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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

purchasing shares of its capital stock in excess
of $2.0 million during any fiscal year. As of
March 31, 2002, a total of 66,200 shares of Toymax
common stock have been repurchased for a total purchase price
$210,403.

Private
Placement

In December 2000, the Company announced the
private placement of $4.6 million for the purchase of
common stock of Toymax and its subsidiary, Maxverse, had been
accepted. Pursuant to the offering, the Company offered units at
$300,000 per unit consisting of 100,000 shares of Toymax
common stock and 3 million shares of Maxverse, which was
developing wireless communication products for children and
young adults. Through March 31, 2002, 1,533,333 shares of
common stock of Toymax and approximately 46 million shares
common stock of the subsidiary had been issued. The Company
retains controlling interest in the subsidiary. In March 2002,
the Company discontinued the operations of Maxverse
(Note 16).

11.     Stock Options
and Warrants

The Stock Option Plan (the
Plan), which was initiated in fiscal 1998 and
amended in January 1999 and 2000, is administered under the
direction of the Compensation Committee of the Board of
Directors, which has complete discretion to select the optionee
and to establish terms and conditions of each option, subject to
the provisions of the Plan. A total of 3,500,000 shares of
Common Stock were reserved by the Company for issuance upon
exercise of stock options granted or which may be granted under
the Plan.

Stock options outstanding have a life of
10 years for non-qualified options and 5 years if the
grant is an Incentive Stock Option (the Incentive
Options), as defined in Section 422 of the
Internal Revenue Code. These options may not be exercised more
than 10 years after the grant or 5 years if the grant
is an Incentive Option to any employee who owns more than 10% of
the outstanding voting power of the Company.

Incentive Options granted may not be less than
100% of the fair market value of the Common Stock as of the date
of the grant or 110% of the fair market value if the grant is to
an employee who owns more than 10% of the outstanding voting
power of the Company.

The following table summarizes information about
stock option activity for the years ended March 31, 2000,
2001 and 2002:

|                        |           |        |           |                |   |          |            |            |  |   |      |      | 
|----------------------- | --------- | ------ | --------- | -------------- | - | -------- | ---------- | ---------- |  | - | ---- | ---- | 
|                        |           |        |           | Exercise Price |   | Weighted
|                        |           | Option |           | Range Per      |   | Average 
|                        |           | Shares |           | Share          |   | Price   
|                        |           |        |           |                |   |         
|Balance, March 31, 1999 |           |        | 716,500   |                |   | $        | 6.75-$8.63 |            |  | $ | 8.01 |     
|                        |           |        |           |                |   |          |            |            |  |   |      |     
|                        | Granted   |        |           | 1,948,625      |   |          |            | 3.75- 7.94 |  |   |      | 4.30 | 
|                        | Exercised |        |           |               |   |          |            |           |  |   |      |      | 
|                        | Cancelled |        |           | (26,150        | ) |          |            | 5.25- 8.63 |  |   |      | 7.11 | 
|                        |           |        |           |                |   |          |            |            |  |   |      |     
|Balance, March 31, 2000 |           |        | 2,638,975 |                |   |          | 3.75- 8.63 |            |  |   | 5.28 |     
|                        |           |        |           |                |   |          |            |            |  |   |      |     
|                        | Granted   |        |           | 311,750        |   |          |            | 1.34- 2.62 |  |   |      | 1.38 | 
|                        | Exercised |        |           |               |   |          |            |           |  |   |      |      | 
|                        | Cancelled |        |           | (656,825       | ) |          |            | 1.34- 8.63 |  |   |      | 7.85 | 
|                        |           |        |           |                |   |          |            |            |  |   |      |     
|Balance, March 31, 2001 |           |        | 2,293,900 |                |   |          | 1.34- 8.63 |            |  |   | 4.01 |     
|                        |           |        |           |                |   |          |            |            |  |   |      |     
|                        | Granted   |        |           | 1,099,000      |   |          |            | 0.94- 3.75 |  |   |      | 1.74 | 
|                        | Exercised |        |           | (149,594       | ) |          |            | 1.30- 1.82 |  |   |      | 1.58 | 
|                        | Cancelled |        |           | (1,245,041     | ) |          |            | 1.30- 8.63 |  |   |      | 3.55 | 
|                        |           |        |           |                |   |          |            |            |  |   |      |     
|Balance, March 31, 2002 |           |        | 1,998,265 |                |   | $        | 0.94-$8.63 |            |  | $ | 3.25 |     
|                        |           |        |           |                |   |          |            |            |  |   |      |     

F-18



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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Statement of Financial Accounting Standards
No. 123 (SFAS No. 123),
Accounting for Stock-Based Compensation,
requires the Company to provide pro forma information regarding
net income and net income per common share as if compensation
costs for the Companys stock option plans had been
determined in accordance with the fair value method prescribed
in SFAS No. 123. Had compensation expense been recorded
under the provisions of SFAS No. 123, the impact on the
Companys net earnings and earnings per share would have
been:

|                                     |                                            |                      |   |            |   |      |   |             |   |  |   |             |  
|------------------------------------ | ------------------------------------------ | -------------------- | - | ---------- | - | ---- | - | ----------- | - |  | - | ----------- | -
|                                     |                                            |                     
|                                     |                                            | Year Ended March 31,
|                                     |                                            |                     
|                                     |                                            | 2000                 |   | 2001       |   | 2002
|                                     |                                            |                      |   |            |   |     
|Net income (loss):                   |                                            |                      |   |            |   |      |   |             |   |  |   |            
|                                     | As reported                                |                      | $ | (1,901,360 | ) |      | $ | (9,747,630  | ) |  | $ | (23,861,757 | )
|                                     | Pro forma compensation expense, net of tax |                      |   | (656,150   | ) |      |   | (1,457,066  | ) |  |   | (1,566,838  | )
|                                     |                                            |                      |   |            |   |      |   |             |   |  |   |            
|                                     | Pro forma                                  |                      | $ | (2,557,510 | ) |      | $ | (11,204,696 | ) |  | $ | (25,428,595 | )
|                                     |                                            |                      |   |            |   |      |   |             |   |  |   |            
|Pro forma earnings (loss) per share: |                                            |                      |   |            |   |      |   |             |   |  |   |            
|                                     | Basic and diluted                          |                      | $ | (0.24      | ) |      | $ | (0.99       | ) |  | $ | (2.10       | )
|                                     |                                            |                      |   |            |   |      |   |             |   |  |   |            

The fair value of each option granted is
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average
assumptions used for all grants in 2000, 2001 and 2002: dividend
yield of 0.00%; risk-free interest rate ranges from 3.97% to
4.81%; an expected life of options ranging from 5 to
10 years for 10-year options and a volatility of 46.5% for
the year ended March 31, 2000, 89% for the year ended
March 31, 2001 and 100% for the year ended March 31,
2002. The weighted average fair value of options granted was
$2.44, $1.09 and $0.91 for the years ended March 31, 2000,
2001 and 2002, respectively.

The following table summarizes information about
stock options outstanding at March 31, 2002:

|                   |  |                  |           |                                 |  |   |      | 
|------------------ |  | ---------------- | --------- | ------------------------------- |  | - | ---- | 
|                   |  |                 
|                   |  | Outstanding     
|                   |  |                 
|Option Price Range |  | Number of Shares |           | Weighted Average Exercise Price
|                   |  |                  |           |                                
|$0.94 - $1.30      |  |                  | 214,000   |                                 |  | $ | 1.25 | 
|$1.34 - $1.47      |  |                  | 248,100   |                                 |  | $ | 1.39 | 
|$1.63 - $1.63      |  |                  | 7,500     |                                 |  | $ | 1.63 | 
|$1.82 - $1.82      |  |                  | 245,365   |                                 |  | $ | 1.82 | 
|$2.00 - $2.15      |  |                  | 55,000    |                                 |  | $ | 2.07 | 
|$2.62 - $2.62      |  |                  | 10,000    |                                 |  | $ | 2.62 | 
|$3.75 - $3.75      |  |                  | 850,000   |                                 |  | $ | 3.75 | 
|$5.25 - $5.25      |  |                  | 269,800   |                                 |  | $ | 5.25 | 
|$5.31 - $5.31      |  |                  | 50,000    |                                 |  | $ | 5.31 | 
|$8.63 - $8.63      |  |                  | 48,500    |                                 |  | $ | 8.63 | 
|                   |  |                  |           |                                 |  |   |      | 
|$0.94 - $8.63      |  |                  | 1,998,265 |                                 |  | $ | 3.25 | 
|                   |  |                  |           |                                 |  |   |      | 

Pursuant to the Stock Purchase Agreement dated
February 10, 2002 between Jakks Pacific, Inc. and the
Company, the options outstanding on March 11, 2002 were
amended to be fully exercisable for a six-month period
commencing on the earliest of the effective date of the merger,
or its termination, or September 30, 2002. Upon the
expiration of the six-month exercise period, the outstanding
options will terminate. In accordance with FIN No. 44, the
modification of option terms resulted in a $2.7 million
charge to operations and a credit to additional paid in capital.

In conjunction with its initial public offering,
the Company issued warrants to the underwriter to purchase
195,750 shares of Common Stock at an exercise price of
$10.20 per share. There was no charge to operations

F-19



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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

as a result of the issuance of the warrants to
the underwriter. In August 1999, the underwriter exercised
106,105 warrants on a cashless basis, resulting in the
issuance of an additional 28,108 shares of the
Companys common stock.

On August 30, 1999, the Company issued
10,000 warrants at an exercise price of $5.50 per
warrant in conjunction with the execution of a license
agreement. The warrants, which are fully vested, expire on
August 31, 2002 and resulted in a charge of $61,201 based
on the fair value of the warrants issued.

12.     Commitments
and Contingencies

Lease
obligations

The Company leases general and administrative,
warehouse and showroom facilities under non-cancelable operating
leases which expire at various dates. Certain of the leases on
real estate include the payment of property taxes. Additional
warehouse space is leased on a monthly basis.

TMI leases certain equipment under capital
leases. The gross amount of assets recorded under capital leases
is $211,245. Depreciation expense provided on such assets is
included in both cost of goods sold and selling and
administrative expenses in the statements of operations.

Future minimum lease payments under all leases
with non-cancelable lease terms in excess of one year are as
follows:

|                                        |  |           |           |         |  |   |        | 
|--------------------------------------- |  | --------- | --------- | ------- |  | - | ------ | 
|                                        |  | Operating |           | Capital
|Year Ended March 31,                    |  | Leases    |           | Leases 
|                                        |  |           |           |        
|2003                                    |  | $         | 1,117,554 |         |  | $ | 15,716 | 
|2004                                    |  |           | 1,138,744 |         |  |   |       | 
|2005                                    |  |           | 675,370   |         |  |   |       | 
|2006                                    |  |           | 637,426   |         |  |   |       | 
|2007                                    |  |           | 641,120   |         |  |   |       | 
|Thereafter                              |  |           | 1,468,589 |         |  |   |       | 
|                                        |  |           |           |         |  |   |        | 
|                                        |  | $         | 5,678,803 |         |  | $ | 15,716 | 
|                                        |  |           |           |         |  |   |        | 
|Less amounts representing interest      |  |           |           |         |  |   | 926    | 
|                                        |  |           |           |         |  |   |        | 
|Present value of capital lease payments |  |           |           |         |  |   | 14,790 | 
|Less current portion                    |  |           |           |         |  |   | 14,790 | 
|                                        |  |           |           |         |  |   |        | 
|Long-term obligation                    |  |           |           |         |  | $ | 0      | 
|                                        |  |           |           |         |  |   |        | 

Rent expense for the years ended March 31,
2000, 2001 and 2002 was approximately $1.1 million,
$1.4 million, and $1.2 million, respectively.

Royalties

The Company has certain licensing agreements
which involve the payment of royalties based on sales. Royalties
for the years ended March 31, 2000, 2001 and 2002 amounted
to approximately $6.4 million, $5.6 million and
$1.8 million, respectively.

Executive
bonus plan

The Companys Executive Bonus Plan (the
Bonus Plan), is administered by the
Compensation Committee of the Board of Directors (the
Compensation Committee). The Compensation
Committee determines the key management employees of the Company
who will be eligible to participate in the Bonus

F-20



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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Plan and the amount, if any, of each
participants award based on such participants
performance. The aggregate amount of awards made under the Bonus
Plan for a fiscal year may not exceed an amount equal to 15% of
the profit of the Company and its designated affiliates for such
year (as defined), reduced by 15% of the shareholders
equity of the Company and such affiliates during such year.

Litigation

The Company is involved in various legal
proceedings in the ordinary course of its business activities.
The Company believes that the resolution of such legal
proceedings and claims, individually and in aggregate, are not
likely to have a material adverse effect on its financial
position or results of operations.

In March 2001, George G. Grillo, a product
consultant, filed a complaint against the Company as well as
against Monogram International, Inc., Monogram Products (H.K.)
Ltd., Steven Lebensfeld and David Ki Kwan Chu, in the Supreme
Court of the State of New York, County of Suffolk, alleging
breach of express and implied contracts, violation of New York
State Labor Law, unjust enrichment and unfair competition. The
plaintiff seeks monetary damages totaling $280,000 in
compensatory damages, $2,500,000 in exemplary damages plus costs
and attorneys fees. The Company, which intends to defend
the action vigorously as well as interpose counterclaims, does
not believe that the suit will have a material adverse effect on
its financial position or results of operations, however, there
can be no assurance of the outcome.

The Companys federal tax returns for 1992
through 2000 and New York State returns for 1999 through 2001
are under examination. The tax authorities have raised no issues
to date that would have a material effect on the financial
statements.

13.     Major
Customers and Products

Invoiced sales to Toys R US and
WalMart accounted for a total of 43%, 36% and 35% of total
invoiced sales for the years ended March 31, 2000, 2001 and
2002, respectively.

14.     Employee
Benefit Plan

The Company has a tax deferred retirement savings
plan that is intended to qualify under Section 401(k) of
the Internal Revenue Code. Eligible participants may contribute
a percentage of their compensation, but not in excess of the
maximum allowed under the Internal Revenue Code. The plan
provides for matching contributions at TMIs option. TMI
made no contributions for the years ended March 31, 2000,
2001 and 2002.

15.     Segment and
Geographic Data

The Company operates two reportable segments:
Toymax Brands (primarily toy products, together with the Yaboom
joint venture) and Toymax Enterprises (primarily leisure and
recreational products).

F-21



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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following tables present summarized
information about the Companys operations by different
geographic areas (net of consolidating eliminations) as of and
for the three years ended March 31, 2002:

|                                |  |               |            |             |  |              |            |   |  |   |             |  
|------------------------------- |  | ------------- | ---------- | ----------- |  | ------------ | ---------- | - |  | - | ----------- | -
|                                |  |               |            | Toymax      |  |             
|Year Ended March 31, 2000       |  | Toymax Brands |            | Enterprises |  | Consolidated
|                                |  |               |            |             |  |             
|Revenues-Net sales              |  | $             | 91,061,966 |             |  | $            | 18,802,711 |   |  | $ | 109,864,677 |  
|Income (loss) before income tax |  |               | (6,269,276 | )           |  |              | 2,295,198  |   |  |   | (3,974,078  | )
|Total assets                    |  |               | 45,236,966 |             |  |              | 43,836,231 |   |  |   | 89,073,197  |  
|Interest income                 |  |               | 533,933    |             |  |              |           |   |  |   | 533,933     |  
|Interest expense                |  |               | (1,067,436 | )           |  |              | (2,306     | ) |  |   | (1,069,742  | )
|Depreciation and amortization   |  |               | 1,981,742  |             |  |              | 2,388,529  |   |  |   | 4,370,271   |  
|Capital expenditures            |  |               | 2,941,379  |             |  |              | 1,056,479  |   |  |   | 3,997,858   |  
|                                |  |               |            |             |  |              |            |   |  |   |             |  

|                                |  |               |            |             |  |              |            |   |  |   |             |  
|------------------------------- |  | ------------- | ---------- | ----------- |  | ------------ | ---------- | - |  | - | ----------- | -
|                                |  |               |            | Toymax      |  |             
|Year Ended March 31, 2001       |  | Toymax Brands |            | Enterprises |  | Consolidated
|                                |  |               |            |             |  |             
|Revenues-Net sales              |  | $             | 85,495,922 |             |  | $            | 29,655,563 |   |  | $ | 115,151,485 |  
|Income (loss) before income tax |  |               | (2,269,190 | )           |  |              | 3,385,246  |   |  |   | 1,116,056   |  
|Total assets                    |  |               | 48,198,647 |             |  |              | 20,888,945 |   |  |   | 69,087,592  |  
|Interest income                 |  |               | 183,106    |             |  |              | 64,777     |   |  |   | 247,883     |  
|Interest expense                |  |               | (1,100,503 | )           |  |              | (32,626    | ) |  |   | (1,133,129  | )
|Depreciation and amortization   |  |               | 2,467,698  |             |  |              | 3,131,571  |   |  |   | 5,599,269   |  
|Capital expenditures            |  |               | 2,258,409  |             |  |              | 739,578    |   |  |   | 2,997,987   |  
|                                |  |               |            |             |  |              |            |   |  |   |             |  

|                                |  |               |             |             |  |              |            |   |  |   |             |  
|------------------------------- |  | ------------- | ----------- | ----------- |  | ------------ | ---------- | - |  | - | ----------- | -
|                                |  |               |             | Toymax      |  |             
|Year Ended March 31, 2002       |  | Toymax Brands |             | Enterprises |  | Consolidated
|                                |  |               |             |             |  |             
|Revenues-Net sales              |  | $             | 65,568,667  |             |  | $            | 29,283,585 |   |  | $ | 94,852,252  |  
|Income (loss) before income tax |  |               | (30,651,395 | )           |  |              | 2,725,744  |   |  |   | (27,925,651 | )
|Total assets                    |  |               | 26,775,126  |             |  |              | 29,030,865 |   |  |   | 55,805,991  |  
|Interest income                 |  |               | 108,892     |             |  |              | 48,296     |   |  |   | 157,188     |  
|Interest expense                |  |               | (1,132,740  | )           |  |              | (2,651     | ) |  |   | (1,135,391  | )
|Depreciation and amortization   |  |               | 2,201,867   |             |  |              | 530,446    |   |  |   | 2,732,313   |  
|Capital expenditures            |  |               | 3,116,764   |             |  |              | 319,894    |   |  |   | 3,436,658   |  
|                                |  |               |             |             |  |              |            |   |  |   |             |  

The following tables present information about
the Company by geographic area as of and for three years ended
March 31, 2002:

|                   |               |                      |            |            |  |      |            |            |  |   |            |            | 
|------------------ | ------------- | -------------------- | ---------- | ---------- |  | ---- | ---------- | ---------- |  | - | ---------- | ---------- | 
|                   |               |                     
|                   |               | Year Ended March 31,
|                   |               |                     
|                   |               | 2000                 |            | 2001       |  | 2002
|                   |               |                      |            |            |  |     
|Long-lived Assets: |               |                      |            |            |  |      |            |            |  |   |            |           
|                   | United States |                      | $          | 19,754,712 |  |      | $          | 17,614,988 |  |   | $          | 11,923,917 | 
|                   | Hong Kong     |                      |            | 1,340,503  |  |      |            | 1,688,246  |  |   |            | 5,349,190  | 
|                   |               |                      |            |            |  |      |            |            |  |   |            |           
|                   |               | $                    | 21,095,215 |            |  | $    | 19,303,234 |            |  | $ | 17,273,107 |           
|                   |               |                      |            |            |  |      |            |            |  |   |            |           

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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                          |               |                      |             |            |  |      |             |            |  |   |            |            | 
|------------------------- | ------------- | -------------------- | ----------- | ---------- |  | ---- | ----------- | ---------- |  | - | ---------- | ---------- | 
|                          |               |                     
|                          |               | Year Ended March 31,
|                          |               |                     
|                          |               | 2000                 |             | 2001       |  | 2002
|                          |               |                      |             |            |  |     
|Sales by Geographic Area: |               |                      |             |            |  |      |             |            |  |   |            |           
|                          | United States |                      | $           | 89,473,797 |  |      | $           | 94,852,985 |  |   | $          | 81,948,478 | 
|                          | Europe        |                      |             | 14,027,241 |  |      |             | 13,159,570 |  |   |            | 8,172,258  | 
|                          | Canada        |                      |             | 3,547,750  |  |      |             | 2,402,269  |  |   |            | 1,362,834  | 
|                          | Hong Kong     |                      |             | 940,748    |  |      |             | 850,419    |  |   |            | 106,506    | 
|                          | Other         |                      |             | 1,875,141  |  |      |             | 3,886,242  |  |   |            | 3,262,176  | 
|                          |               |                      |             |            |  |      |             |            |  |   |            |           
|                          |               | $                    | 109,864,677 |            |  | $    | 115,151,485 |            |  | $ | 94,852,252 |           
|                          |               |                      |             |            |  |      |             |            |  |   |            |           

16.     Discontinued
Operations

Effective November 30, 2001, the Company
sold the net assets of the Monogram and Candy Planet segments of
the business to an entity controlled by David Chu, the former
Chairman of the Companys board of directors, for $2.25
million. A gain of $0.5 million was recognized on the sale.

In March 2002, the Company decided to abandon and
discontinue the operations of Maxverse, which commenced
operations in fiscal 2001.

The results of these operations, which have been
classified as discontinued operations in the accompanying
financial statements are as follows:

|                                      |  |                      |            |      |  |      |             |   |  |   |            |  
|------------------------------------- |  | -------------------- | ---------- | ---- |  | ---- | ----------- | - |  | - | ---------- | -
|                                      |  |                     
|                                      |  | Year Ended March 31,
|                                      |  |                     
|                                      |  | 2000                 |            | 2001 |  | 2002
|                                      |  |                      |            |      |  |     
|Net sales                             |  | $                    | 29,899,125 |      |  | $    | 16,951,272  |   |  | $ | 7,358,207  |  
|Income (loss) before income taxes     |  |                      | 349,691    |      |  |      | (12,258,343 | ) |  |   | (4,762,047 | )
|Income tax expense (benefit)          |  |                      | 483,850    |      |  |      | (2,007,587  | ) |  |   | (346,883   | )
|Minority interest                     |  |                      |           |      |  |      | (474,547    | ) |  |   | (479,882   | )
|                                      |  |                      |            |      |  |      |             |   |  |   |            |  
|Net loss from discontinued operations |  | $                    | (134,159   | )    |  | $    | (9,776,209  | ) |  | $ | (3,935,282 | )
|                                      |  |                      |            |      |  |      |             |   |  |   |            |  

As of March 31, 2001, the net assets of
discontinued operations were as follows:

|                                             |  |   |           | 
|-------------------------------------------- |  | - | --------- | 
|Due from factor                              |  | $ | 1,933,457 | 
|Account receivable                           |  |   | 36,307    | 
|Inventory                                    |  |   | 1,730,822 | 
|Prepaid expenses and other current assets    |  |   | 1,216,527 | 
|                                             |  |   |           | 
|Current assets of discontinued operations    |  |   | 4,917,113 | 
|                                             |  |   |           | 
|Property and equipment                       |  |   | 894,868   | 
|                                             |  |   |           | 
|Total assets of discontinued operations      |  | $ | 5,811,981 | 
|                                             |  |   |           | 
|Accrued expenses                             |  | $ | 1,090,704 | 
|                                             |  |   |           | 
|Total liabilities of discontinued operations |  | $ | 1,090,704 | 
|                                             |  |   |           | 

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##### Table of Contents



TOYMAX INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                     
|--- | ------------------------------------
|17. | Quarterly Financial Data (Unaudited)

|                                 |                                                    |                                          |   |         |       |         |   |         |       |          |   |        |       |   |   |         |       |   |   |         |       |  
|-------------------------------- | -------------------------------------------------- | ---------------------------------------- | - | ------- | ----- | ------- | - | ------- | ----- | -------- | - | ------ | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                 |                                                    | First                                    |   | Second  |       | Third   |   | Fourth  |       |         
|                                 |                                                    | Quarter                                  |   | Quarter |       | Quarter |   | Quarter |       | Year End
|                                 |                                                    |                                          |   |         |       |         |   |         |       |         
|                                 |                                                    |                                         
|                                 |                                                    | (In thousands, except per share amounts)
|Fiscal Year Ended March 31, 2001 |                                                    |                                          |   |         |       |         |   |         |       |          |   |        |       |   |   |         |       |   |   |        
|                                 | Net sales Operating income (loss)                  |                                          | $ | 21,688  |       |         | $ | 44,348  |       |          | $ | 34,601 |       |   | $ | 14,514  |       |   | $ | 115,151 |      
|                                 | Income (loss) before income taxes                  |                                          |   | 1,371   |       |         |   | 8,099   |       |          |   | 261    |       |   |   | (5,068  | )     |   |   | 4,663   |      
|                                 | Net income (loss) from continuing operations       |                                          |   | 1,021   |       |         |   | 7,414   |       |          |   | (36    | )     |   |   | (7,283  | )     |   |   | 1,116   |      
|                                 | Net income (loss) from discontinued
    operations |                                          |   | 597     |       |         |   | 4,869   |       |          |   | (155   | )     |   |   | (5,283  | )     |   |   | 28      |      
|                                 | Net income                                         |                                          |   | (846    | )     |         |   | (1,314  | )     |          |   | (1,444 | )     |   |   | (6,172  | )     |   |   | (9,776  | )    
|                                 | Basic and diluted earnings (loss) per share:       |                                          |   | (249    | )     |         |   | 3,555   |       |          |   | (1,599 | )     |   |   | (11,455 | )     |   |   | (9,748  | )    
|                                 |                                                    | Continued operations                     |   | $       | 0.06  |         |   | $       | 0.46  |          |   | $      | (0.01 | ) |   | $       | (0.44 | ) |   | $       |      |  
|                                 |                                                    | Discontinued operations                  |   | $       | (0.08 | )       |   | $       | (0.12 | )        |   | $      | (0.12 | ) |   | $       | (0.51 | ) |   | $       | (0.86 | )
|                                 |                                                    | Total                                    |   | $       | (0.02 | )       |   | $       | 0.34  |          |   | $      | (0.13 | ) |   | $       | (0.95 | ) |   | $       | (0.86 | )
|                                 |                                                    |                                          |   |         |       |         |   |         |       |          |   |        |       |   |   |         |       |   |   |        
|Fiscal Year Ended March 31, 2002 |                                                    |                                          |   |         |       |         |   |         |       |          |   |        |       |   |   |         |       |   |   |        
|                                 | Net sales                                          |                                          | $ | 20,008  |       |         | $ | 39,104  |       |          | $ | 25,613 |       |   | $ | 10,127  |       |   | $ | 94,852  |      
|                                 | Operating income (loss)                            |                                          |   | (1,050  | )     |         |   | 7,130   |       |          |   | (7,295 | )     |   |   | (25,117 | )     |   |   | (26,332 | )    
|                                 | Income (loss) before income taxes                  |                                          |   | (1,474  | )     |         |   | 6,750   |       |          |   | (7,630 | )     |   |   | (25,572 | )     |   |   | (27,926 | )    
|                                 | Net income (loss) from continuing operations       |                                          |   |         |       |         |   | (984    | )     |          |   | 5,282  |       |   |   | (5,294  | )     |   |   | (19,430 | )    
|                                 | Net income (loss) from discontinued
    operations |                                          |   | (747    | )     |         |   | (444    | )     |          |   | (1,110 | )     |   |   | (1,634  | )     |   |   | (3,935  | )    
|                                 | Gain on disposal of discontinued operations        |                                          |   |        |       |         |   |        |       |          |   | 500    |       |   |   |        |       |   |   | 500     |      
|                                 | Net income                                         |                                          |   | (1,732  | )     |         |   | 4,838   |       |          |   | (5,904 | )     |   |   | (21,064 | )     |   |   | (23,862 | )    
|                                 | Basic and diluted earnings (loss) per share:       |                                          |   |         |       |         |   |         |       |          |   |        |       |   |   |         |       |   |   |         |      
|                                 |                                                    | Continued operations                     |   | $       | (0.08 | )       |   | $       | 0.44  |          |   | $      | (0.44 | ) |   | $       | (1.61 | ) |   | $       | (1.69 | )
|                                 |                                                    | Discontinued operations                  |   | $       | (0.06 | )       |   | $       | (0.04 | )        |   | $      | (0.05 | ) |   | $       | (0.13 | ) |   | $       | (0.28 | )
|                                 |                                                    | Total                                    |   | $       | (0.14 | )       |   | $       | 0.40  |          |   | $      | (0.49 | ) |   | $       | (1.74 | ) |   | $       | (1.97 | )
|                                 |                                                    |                                          |   |         |       |         |   |         |       |          |   |        |       |   |   |         |       |   |   |        

During the fourth quarter of fiscal 2001, based
on continued losses and weak projections for the Companys
Monogram subsidiary and the uncertainty of the operations of the
Companys joint venture, Yaboom, the Company recognized an
impairment loss of approximately $7.1 million related to
the valuation of goodwill and the investment in and advances to
the Companys joint venture.

During the fourth quarter of fiscal 2002, the
Company had significant adjustments primarily related to the
restructuring as a result of the acquisition by Jakks
(Note 2). This affected operating income by approximately
$15.6 million. The Company also discontinued the operations
of Maxverse in the fourth quarter of fiscal 2002 (Note 16).
Furthermore, in the fourth quarter the Company provided for
$0.4 million for U.S. tax on previously untaxed Hong Kong
income.

F-24



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##### Table of Contents



REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS 
 ON THE FINANCIAL STATEMENT SCHEDULE

The Board of Directors and Stockholders of

Toymax International, Inc.


The audits referred to in our report dated
May 8, 2002 relating to the consolidated financial
statements of Toymax International, Inc. included the audits of
the financial statement schedule. This financial statement
schedule is the responsibility of the Companys management.
Our responsibility is to express an opinion on this financial
statement schedule based upon our audits.

In our opinion the financial statement schedule
presents fairly, in all material respects, the information set
forth therein.

BDO Seidman, LLP

New York, New York


May 8, 2002


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##### Table of Contents



Toymax International, Inc.

and Subsidiaries


VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II

THREE YEARS ENDED MARCH 31,
2002

|                                 |  |            |         |            |  |            |         |            |  |                |          |      |  |   |         |  |  |   |         | 
|-------------------------------- |  | ---------- | ------- | ---------- |  | ---------- | ------- | ---------- |  | -------------- | -------- | ---- |  | - | ------- |  |  | - | ------- | 
|                                 |  |            |         |            |  |            |         |           
|                                 |  |            |         | Additions  |  |            |         |           
|                                 |  |            |         | (1)        |  | (2)        |         |            |  |               
|                                 |  |            |         |            |  |            |         |            |  |               
|                                 |  | Balance at |         | Charged to |  | Charged to |         |            |  |               
|                                 |  | Beginning  |         | Costs and  |  | Other      |         |            |  | Balance at End
|Description                      |  | of Period  |         | Expenses   |  | Accounts   |         | Deductions |  | of Period     
|                                 |  |            |         |            |  |            |         |            |  |               
|CONSOLIDATED VALUATION RESERVES: |  |            |         |            |  |            |         |            |  |                |          |      |  |   |         |  |  |   |         | 
|YEAR ENDED MARCH 31, 2000:       |  |            |         |            |  |            |         |            |  |                |          |      |  |   |         |  |  |   |         | 
|Allowance for possible losses    |  | $          | 136,639 |            |  | $          | 53,749  |            |  | $              | 200,000  | (a)  |  | $ | 110,623 |  |  | $ | 279,765 | 
|                                 |  |            |         |            |  |            |         |            |  |                |          |      |  |   |         |  |  |   |         | 
|YEAR ENDED MARCH 31, 2001:       |  |            |         |            |  |            |         |            |  |                |          |      |  |   |         |  |  |   |         | 
|Allowance for possible losses    |  | $          | 279,765 |            |  | $          | 364,966 |            |  |                |         |      |  | $ | 168,944 |  |  | $ | 475,787 | 
|                                 |  |            |         |            |  |            |         |            |  |                |          |      |  |   |         |  |  |   |         | 
|YEAR ENDED MARCH 31, 2002:       |  |            |         |            |  |            |         |            |  |                |          |      |  |   |         |  |  |   |         | 
|Allowance for possible losses    |  | $          | 475,787 |            |  | $          | 355,768 |            |  | $              | (211,823 | )(b) |  | $ | 278,747 |  |  | $ | 340,985 | 
|                                 |  |            |         |            |  |            |         |            |  |                |          |      |  |   |         |  |  |   |         | 



---



|   |                                                                
|-- | ---------------------------------------------------------------
|a) | Acquisition of Monogram International, Inc.                    
|  
|b) | Write-off discontinued operations of Monogram
    International

S-2