JAKKS PACIFIC INC, S-3/A, 1999-04-27

JAKKS PACIFIC INC
S-3/A, 1999-04-27
GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES)

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1999

REG. NO. 333-74717

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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JAKKS PACIFIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 95-4527222
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>

22761 PACIFIC COAST HIGHWAY, MALIBU, CALIFORNIA 90265 (310) 456-7799
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

JACK FRIEDMAN, CHAIRMAN
JAKKS PACIFIC, INC.
22761 PACIFIC COAST HIGHWAY, MALIBU, CALIFORNIA 90265 (310) 456-7799
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:

<TABLE>
<S> <C>
MURRAY L. SKALA, ESQ. CHRISTOPHER T. JENSEN, ESQ.
FEDER, KASZOVITZ, ISAACSON, WEBER, SKALA & BASS MORGAN, LEWIS & BOCKIUS LLP
LLP 101 PARK AVENUE, NEW YORK, NY 10178-0060
750 LEXINGTON AVENUE, NEW YORK, NY 10022-1200 (212) 309-6000 FAX: (212) 309-6273
(212) 888-8200 FAX: (212) 888-7776
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO OFFERING PRICE PER AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, par value
$.001 per share........ 2,702,500 Shares(2) $23.25 $62,833,125 $17,467.61(3)
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</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457.

(2) Includes 352,500 shares of common stock, par value $.001 per share, which
the underwriters have the option to purchase to cover over-allotments, if
any.

(3) Of which $13,464.90 has been previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2

The information in this prospectus is not complete and may be changed. JAKKS has
filed a registration statement with the Securities and Exchange Commission and
we may not sell these securities until it becomes effective. We are not offering
to sell, or soliciting any offer to buy these securities in any state where the
offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED APRIL 26, 1999

2,350,000 SHARES

JAKKS PACIFIC, INC.

COMMON STOCK

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

Of the 2,350,000 shares of common stock being offered, JAKKS Pacific, Inc.
is offering 2,100,000 shares and two of our stockholders are offering 250,000
shares. Our common stock is traded on the Nasdaq National Market under the
symbol "JAKK." On April 23, 1999, the last reported sale price of our common
stock on the Nasdaq National Market was $23.25 per share.

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

AN INVESTMENT IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.

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<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price.......................... $ $
Underwriting Discount.......................... $ $
Proceeds to JAKKS.............................. $ $
Proceeds to the Selling Stockholders........... $ $
</TABLE>

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT, NOR HAS ANY STATE
SECURITIES REGULATOR, APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

JAKKS and the selling stockholders have granted the underwriters a 30-day
option to purchase up to 352,500 additional shares of our common stock to cover
over-allotments. The underwriters expect to deliver the shares of common stock
to purchasers on or about , 1999.

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ADVEST, INC.
MORGAN KEEGAN & COMPANY, INC.
SOUTHWEST SECURITIES

THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3

[INTENTIONALLY LEFT BLANK]
<PAGE> 4

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED IN THIS
PROSPECTUS. WE AND THE UNDERWRITERS HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE
OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF OUR COMMON STOCK. IN
THIS PROSPECTUS, REFERENCES TO THE "COMPANY," "JAKKS," "WE," "US" AND "OUR"
REFER TO JAKKS PACIFIC, INC. AND ITS SUBSIDIARIES.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Disclosure Regarding Forward-Looking Statements............. 3
Summary..................................................... 5
Risk Factors................................................ 8
Use of Proceeds............................................. 16
Price Range of Common Stock and Dividend Policy............. 17
Capitalization.............................................. 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 29
Management.................................................. 40
Principal and Selling Stockholders.......................... 42
Certain Relationships and Related Transactions.............. 43
Description of Securities................................... 44
Underwriting................................................ 46
Legal Matters............................................... 48
Experts..................................................... 48
Where You Can Find More Information......................... 49
Index to Consolidated Financial Statements.................. F-1
</TABLE>

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus 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 prospectus
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 under "Risk Factors" below and elsewhere in this prospectus. You
should understand that forward-looking statements made in connection

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with this offering 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.

We own or have rights to various trademarks and brand or trade names that
we use in conjunction with the sale of our products. These include World
Wrestling Federation, Road Champs, Remco, Child Guidance, Ford, Chevrolet, Car
and Driver and B.A.S.S. Masters, among others. We also refer in this prospectus
to other trademarks or brand or trade names that are owned or licensed by other
companies.

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SUMMARY

Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus, especially
"Risk Factors," beginning on page 8, and our consolidated financial statements
and the related notes, before deciding to invest in our common stock. Unless
otherwise indicated, all information contained in this prospectus assumes that
the underwriters will not exercise their over-allotment option.

THE COMPANY

OUR BUSINESS................. We design, develop, produce and market toys and
related products. We focus on "evergreen"
branded products that are less subject to market
fads or trends and feature well-known brand
names and simpler, lower-priced toys and
accessories.

OUR PRODUCTS................. Our principal products are (1) action figures
and accessories featuring licensed characters,
principally from the World Wrestling Federation,
(2) Road Champs die-cast collectible and toy
vehicles and Remco toy vehicles and role-play
toys and accessories, (3) Child Guidance infant
and pre-school electronic toys, and (4) fashion
and mini dolls and related accessories. We also
participate in a joint venture with THQ Inc.
("THQ") that will develop, produce and market
video games based on World Wrestling Federation
characters and themes under an exclusive license
with Titan Sports, Inc. ("Titan Sports").

OUR CUSTOMERS................ We make most of our sales to major U.S. toy and
discount retail store chains, such as Toys 'R
Us, Wal-Mart, Kay-Bee Toys, Kmart and Target,
department stores, specialty stores,
wholesalers, hobby shops and corporate accounts.
We also sell our products to customers outside
the U.S., including foreign subsidiaries of some
of our major U.S. customers and other non-U.S.
retailers and distributors.

OUR INDUSTRY................. According to Toy Manufacturers of America, Inc.,
the leading industry trade group, total
manufacturers' shipments of toys, excluding
video games, in the U.S. were approximately
$15.2 billion in 1998, and sales by U.S. toy
manufacturers to non-U.S. customers totaled
approximately $5.5 billion in 1997. In the video
game segment, manufacturers' shipments of video
game software were approximately $3.0 billion in
1998.
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OUR STRATEGY................. We plan to expand our core product lines and
diversify into new product categories by growing
internally, making strategic acquisitions and
entering into additional character and product
licenses. We also plan to intensify our
international sales efforts. In addition, we
will continue our focus on maintaining our
low-overhead infrastructure and efficient
operating methods.

RECENT OPERATING RESULTS..... On April 12, 1999, we announced operating
results for our first quarter ended March 31,
1999. Net sales for the quarter in 1999 totaled
$25.0 million, an increase of 126% from $11.0
million for the comparable period in 1998. Net
income in the 1999 quarter was $2.0 million, an
increase of 334% from $0.5 million in the 1998
quarter, while diluted earnings per share
increased to $0.25 in the 1999 quarter from
$0.08 in the 1998 quarter.

THE OFFERING

<TABLE>
<S> <C>
Common stock offered by JAKKS............... 2,100,000 shares
Common stock offered by the selling
stockholders.............................. 250,000 shares
Common stock outstanding after this
offering.................................. 9,424,530 shares(1)(2)
Use of proceeds to JAKKS.................... To fund capital obligations to the joint
venture, to fund product development, to
finance potential acquisitions and for
working capital and general corporate
purposes
Nasdaq National Market Symbol............... JAKK
</TABLE>

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(1) Does not include 1,786,916 shares issuable upon the exercise of all our
outstanding warrants and options or 558,658 shares issuable upon the
conversion of all our outstanding convertible preferred stock.

(2) If all the over-allotment shares are also sold, we would issue an additional
307,500 shares, so that 9,732,030 shares would be outstanding after this
offering.

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RISK FACTORS

You should refer to the section entitled "Risk Factors," beginning on page
8, for a discussion of certain factors you should consider before purchasing our
common stock.

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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
APRIL 1, 1995
(INCEPTION) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, -----------------------------
1995 1996 1997 1998
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales......................... $6,078 $12,052 $41,945 $85,253
Gross profit...................... 1,947 4,821 16,070 33,253
Income from operations............ 547 1,209 4,175 9,246
Net income........................ $ 436 $ 1,180 $ 2,786 $ 6,375
====== ======= ======= =======
Basic earnings per share.......... $ 0.22 $ 0.36 $ 0.60 $ 1.12
====== ======= ======= =======
Weighted average shares
outstanding..................... 2,000 3,284 4,621 5,693
====== ======= ======= =======
Diluted earnings per share........ $ 0.20 $ 0.34 $ 0.52 $ 0.89
====== ======= ======= =======
Weighted average shares and
equivalents outstanding......... 2,191 3,504 6,008 7,602
====== ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $12,452 $57,798
Working capital....................................... 13,736 59,142
Total assets.......................................... 58,736 103,674
Total stockholders' equity............................ 37,754 88,692
</TABLE>

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(1) As adjusted to reflect (a) the sale by JAKKS of 2,100,000 shares of our
common stock at an assumed public offering price of $23.25 per share and our
application of the net proceeds we receive from that sale and (b) the
conversion of $6.0 million principal amount of our convertible debentures
into 1,043,479 shares of our common stock. You should refer to the section
entitled "Use of Proceeds" for a discussion of how we intend to use these
net proceeds and the section entitled "Description of
Securities -- Convertible Debentures" for a description of these securities
and the terms of conversion.

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RISK FACTORS

The purchase of our common stock involves substantial investment risks. You
should carefully consider the following risk factors, in addition to the
remainder of this prospectus, before purchasing our common stock.

WE ARE SUBJECT TO CHANGING CONSUMER PREFERENCES AND
NEW PRODUCT INTRODUCTIONS

Consumer preferences in the toy industry are continuously changing and
difficult to predict. Relatively few products become popular with consumers and
they often have short life cycles. We cannot assure you that:

- our current products will continue to be popular with consumers;

- our product lines or products we introduce will achieve any significant
degree of market acceptance; or

- the life cycles of our products will be sufficient to permit us to
recover licensing, design, manufacturing, marketing and other costs
associated with those products.

Accordingly, our success will depend on our ability to enhance existing
product lines and to develop new products and product lines. The failure of new
product lines to achieve or sustain market acceptance could adversely affect our
business, financial condition and results of operations. In addition, the
success of many of our character- and theme-related products depends on the
popularity of characters in movies, television programs, live wrestling
exhibitions and other media. We cannot assure you that:

- if the media related to our existing character- and theme-related product
lines are successful, this success will result in substantial promotional
value to our products;

- we will be successful in obtaining licenses to produce new character- and
theme-related products in the future; or

- media related to our character- and theme-related product lines will be
released at the times we expect or will be successful.

A LIMITED NUMBER OF OUR PRODUCT LINES ACCOUNT FOR A SUBSTANTIAL PORTION
OF OUR NET SALES

We derive a substantial portion of our net sales from a limited number of
product lines. Sales of the World Wrestling Federation, Road Champs and Remco
product lines represented approximately 82.7% of our net sales in 1997 and 78.5%
in 1998. We cannot assure you that any of the products in these branded product
lines will retain their current popularity. A decrease in the popularity of any
one of these branded product lines may adversely affect our business, financial
condition and results of operations.

THERE ARE RISKS ASSOCIATED WITH OUR LICENSE AGREEMENTS

1. OUR CURRENT LICENSES REQUIRE US TO PAY MINIMUM ROYALTIES

Sales of products under trademarks or trade or brand names licensed from
others accounted for substantially all of our net sales in 1997 and 1998.
Product licenses allow us to capitalize on characters, designs, concepts and
inventions owned by others or developed

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by toy inventors and designers. Our license agreements generally require us to
make specified minimum royalty payments, even if we fail to sell a sufficient
number of units to cover these amounts. In addition, under certain of our
license agreements, if we fail to achieve certain prescribed sales targets, we
may be unable to retain or renew these licenses. Our payments for royalties
earned under our license agreements were approximately $2,858,000 in 1997 and
approximately $6,322,000 in 1998. As of December 31, 1998, our aggregate minimum
royalty payments for 1999 under our then current license agreements were
approximately $1,753,000.

2. THE USE OF OUR LICENSES IS RESTRICTED

Under some of our license agreements, the licensors have the right to
review and approve our use of licensed products, designs or materials before we
are permitted to make any sales. The refusal to permit our use of any licensed
property in the way we propose, or any delay resulting from their review
process, could prohibit or impede our development or sale of new products.

3. NEW LICENSES ARE DIFFICULT TO OBTAIN

Our success will depend in part on our ability to obtain additional
licenses. Competition for desirable licenses is intense. We cannot assure you
that we will be able to secure or renew significant licenses on terms acceptable
to us. In addition, as we add licenses, the need to fund additional royalty
advances and guaranteed minimum royalty payments may strain our cash resources.

THE NEW JOINT VENTURE IS SUBJECT TO NUMEROUS RISKS AND UNCERTAINTIES

In addition to the risks relating to us and the toy industry, the joint
venture faces the following risks:

- The joint venture depends entirely on a single license, which gives it
the exclusive right to produce and market video games based on World
Wrestling Federation characters and themes. The popularity of wrestling,
in general, and the World Wrestling Federation, in particular, is subject
to changing consumer tastes and demands. A decline in the popularity of
the World Wrestling Federation could adversely affect the joint venture's
and our business, financial condition and results of operations.

- The joint venture will rely on hardware manufacturers and THQ's
non-exclusive licenses with them for the right to publish titles for
their platforms and for the manufacture of the joint venture's titles. If
THQ's licenses were to terminate and the joint venture could not
otherwise obtain these licenses from the manufacturers, it would be
unable to publish additional titles for these manufacturers' platforms,
which would materially adversely affect its and our business, financial
condition and results of operations.

- The software industry has experienced periods of significant growth in
consumer interest, followed by periods in which growth has substantially
declined. The joint venture's sales of software titles will be dependent,
among other factors, on the popularity and unit sales of platforms
generally, as well as on the relative popularity and unit sales of
various platforms. The relative popularity of platforms has fluctuated
significantly in recent years. An unexpected decline in the popularity of
a

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particular platform can be expected to have a material adverse effect on
consumer demand for titles released or to be released by the joint
venture for these platforms.

- The joint venture's failure to timely develop titles for new platforms
that achieve significant market acceptance, to maintain net sales that
are commensurate with product development costs or to maintain
compatibility between its PC CD-ROM titles and the related hardware and
operating systems would adversely affect the joint venture's and our
business, financial condition and results of operations.

- We are required to make capital contributions to the joint venture to
enable it to pay guaranteed minimum royalty advances to Titan Sports, as
well as other royalties to developers of World Wrestling Federation
titles. These significant costs are capitalized and then amortized or
otherwise expensed as units of the titles are sold. If future sales of
particular titles are not sufficient to recover these costs, the
resulting write-off could materially adversely affect the joint venture's
and our business, financial condition and results of operations.

THE TOY INDUSTRY IS HIGHLY COMPETITIVE

The toy industry is highly competitive. Many of our competitors have
certain competitive advantages over us due to:

- greater financial resources;

- longer operating histories;

- stronger name recognition;

- larger sales and marketing and product development departments; and

- greater economies of scale.

In addition, the toy industry has no significant barriers to entry.
Competition is based primarily on the ability to design and develop new toys, to
procure licenses for popular characters and trademarks and to successfully
market products. Many of our competitors offer similar products or alternatives
to our products. Our competitors have obtained and are likely to continue to
obtain licenses that overlap our licenses with respect to products, geographic
areas and markets. We cannot assure you that we will be able to obtain adequate
shelf space in retail stores to support our existing products or to expand our
products and product lines or that we will be able to continue to compete
effectively against current and future competitors.

WE MAY NOT BE ABLE TO SUSTAIN OR MANAGE OUR RAPID GROWTH

We experienced rapid growth in net sales and net income in 1996, 1997 and
1998. As a result, comparing our period-to-period operating results may not be
meaningful and results of operations from prior periods may not be indicative of
future results. We cannot assure you that we will continue to experience growth
in, or maintain our present level of, net sales or net income.

Our growth strategy calls for us to continuously develop and diversify our
toy business by acquiring other companies, entering into additional license
agreements and expanding into international markets, which will place additional
demands on our management, operational capacity and financial resources and
systems. The increased demand on

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management may necessitate the recruitment and retention by JAKKS of additional
qualified management personnel. We cannot assure you that we will successfully
recruit and retain qualified personnel or expand and manage our operations
effectively and profitably.

In addition, implementation of our growth strategy is subject to risks
beyond our control, including competition, market acceptance of new products,
changes in economic conditions, our ability to obtain or renew licenses on
commercially reasonable terms and our ability to finance increased levels of
accounts receivable and inventory necessary to support our sales growth, if any.
Accordingly, we cannot assure you that our growth strategy will be implemented
successfully.

WE NEED TO BE ABLE TO ACQUIRE AND INTEGRATE COMPANIES AND NEW PRODUCT LINES
SUCCESSFULLY

Our growth strategy depends in part upon our ability to acquire companies
or new product lines. Future acquisitions will only succeed if we can
effectively assess characteristics of potential target companies or product
lines, such as:

- financial condition and results of operations;

- attractiveness of products;

- suitability of distribution channels;

- management ability; and

- the degree to which acquired operations can be integrated with our
operations.

We cannot assure you that we can identify attractive acquisition candidates
or negotiate acceptable acquisition terms, and our failure to do so may
adversely affect our results of operations and our ability to sustain growth.
Our acquisition strategy involves a number of risks, each of which could
adversely affect our operating results, including:

- difficulties in integrating acquired businesses or product lines,
assimilating new facilities and personnel and harmonizing diverse
business strategies and methods of operation;

- diversion of management attention from operation of our existing
business;

- loss of key personnel from acquired companies; and

- failure of an acquired business to achieve targeted financial results.

A FEW CUSTOMERS ACCOUNT FOR A LARGE PORTION OF OUR NET SALES

In 1998, 69.6% of our net sales came from sales of our products to five
customers. In 1997, that figure was 61.7%. Except for outstanding purchase
orders for specific products, we do not have written contracts with or
commitments from any of our customers. A substantial reduction in or termination
of orders from any of our largest customers could adversely affect our business,
financial condition and results of operations. In addition, pressure by large
customers seeking a reduction in prices, financial incentives, a change in other
terms of sale or for JAKKS to bear the risks and the cost of carrying inventory
could also adversely affect our business, financial condition and results of
operations.

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WE DEPEND ON OUR KEY PERSONNEL

Our success is largely dependent upon the experience and continued services
of Jack Friedman, our Chairman and Chief Executive Officer, and Stephen G.
Berman, our President and Chief Operating Officer. We cannot assure you that we
would be able to find an appropriate replacement for Mr. Friedman or Mr. Berman
if the need should arise, and any loss or interruption of Mr. Friedman's or Mr.
Berman's services could adversely affect our business, financial condition and
results of operations. We maintain key-man life insurance on Mr. Friedman in the
amount of $4.0 million, which may be insufficient to fund the cost of employing
his successor.

OUR BUSINESS MAY BE ADVERSELY AFFECTED BY POLITICAL OR ECONOMIC DEVELOPMENTS IN
CHINA

Substantially all of our products are produced by unaffiliated
manufacturers in the People's Republic of China. As a result, our operations may
be affected by many factors, including:

- economic, political, governmental and labor conditions in China;

- the possibility of expropriation, supply disruption, currency controls
and exchange fluctuations;

- China's relationship with the United States; and

- fluctuations in the exchange rate of the U.S. dollar against foreign
currencies.

1. LOSS OF CHINA'S "MOST FAVORED NATION" STATUS

China currently enjoys "Most Favored Nation" status under United States
tariff laws. China's Most Favored Nation status is reviewed annually by
Congress, and the renewal of this status is subject to significant political
uncertainties. The loss of China's Most Favored Nation status or the imposition
of retaliatory or protectionist trade policies, such as a substantial increase
in the duty on products we import into the United States from China, would
adversely affect our business, financial condition and results of operation.

2. IMPOSITION OF TRADE RESTRICTIONS

China may be subject to retaliatory trade restrictions imposed by the
United States under various provisions of the Trade Act of 1974. In the past,
the United States has threatened the imposition of punitive 100% tariffs on
selected goods and has withdrawn this threat very shortly before sanctions were
to take effect. The imposition by the United States of trade sanctions and
subsequent actions by China would result in manufacturing and distribution
disruptions or higher costs to us which, in turn, would adversely affect our
business, financial condition and results of operations.

3. POLITICAL UNCERTAINTY IN HONG KONG

We maintain an office in Hong Kong to supervise and monitor manufacturing
and product promotion in China. On July 1, 1997, sovereignty over Hong Kong was
transferred from the United Kingdom to China. If Hong Kong's business climate
were to become less

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favorable as a result of the transfer of sovereignty, it would adversely affect
our business, financial condition and results of operations.

OUR PRODUCT SALES ARE SUBJECT TO SEASONAL AND QUARTERLY FLUCTUATIONS

Our product sales are highly seasonal, with a majority of our sales
occurring between September and December, the traditional holiday season. As a
result, approximately 68.1% of our 1998 shipments occurred in the third and
fourth quarters. This seasonality causes our quarterly operating results and
working capital needs to fluctuate significantly.

OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND TO POTENTIAL
PRODUCT LIABILITY CLAIMS

Our business is subject to various laws, including the Federal Hazardous
Substances Act, the Consumer Product Safety Act, the Flammable Fabrics Act and
the rules and regulations promulgated under these acts. These statutes are
administered by the Consumer Product Safety Commission, which has the authority
to exclude from the market products that are found to be hazardous and which can
require a manufacturer to repurchase these products under certain circumstances.
We cannot assure you that defects in our products will not be alleged or found.
Any such allegations or findings could result in:

- product liability claims;

- loss of sales;

- diversion of resources;

- damage to our reputation; and

- increased warranty costs;

any of which may adversely affect our business, financial condition and results
of operations. There can be no assurance that our product liability insurance
will be sufficient to avoid or limit our loss in the event of an adverse outcome
of any product liability claim.

WE DEPEND ON OUR PROPRIETARY RIGHTS

We rely on trademark, copyright and trade secret protection, nondisclosure
agreements and licensing arrangements to establish, protect and enforce our
proprietary rights in our products. The laws of certain foreign countries may
not protect intellectual property rights to the same extent or in the same
manner as the laws of the United States. We cannot assure you that we or our
licensors will be able to successfully safeguard and maintain our proprietary
rights. Further, we cannot assure you that third parties will not assert
intellectual property claims against us in the future. These claims could divert
management attention from operating our business or result in unanticipated
legal and other costs, which could adversely affect our business, financial
condition and results of operations.

WE DEPEND ON THIRD-PARTY MANUFACTURERS

We depend on third parties to manufacture all our products. Although we own
the tools, dies and molds used to manufacture our products, we have limited
control over the manufacturing processes themselves. As a result, any
difficulties encountered by the third-

13
<PAGE> 15

party manufacturers that result in product defects, production delays, cost
overruns or the inability to fulfill orders on a timely basis could adversely
affect our business, financial condition and results of operations.

We do not have long-term contracts with our third-party manufacturers.
Although we believe we would be able to secure other third-party manufacturers
to produce our products as a result of our ownership of the tools, dies and
molds used in the manufacturing process, our operations would be adversely
affected if we lost our relationship with any of our current suppliers or if our
current suppliers' operations or sea or air transportation with our China-based
manufacturers were disrupted or terminated even for a relatively short period of
time. Our tools, dies and molds are located at the facilities of our third-party
manufacturers. Accordingly, significant damage to these facilities could result
in the loss of or damage to a material portion of our tools, dies and molds, in
addition to production delays while new facilities were being arranged and
replacement tools, dies and molds were being produced. We do not maintain an
inventory of sufficient size to provide protection for any significant period
against an interruption of supply, particularly if we were required to utilize
alternative sources of supply.

Although we do not purchase the raw materials used to manufacture our
products, we are potentially subject to variations in the prices we pay our
third-party manufacturers for products, depending on what they pay for their raw
materials.

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE

Market prices of the securities of toy companies are often volatile. The
market price of our common stock may be affected by many factors, including:

- fluctuations in our financial results;

- the actions of our customers and competitors (including new product line
announcements and introductions);

- new regulations affecting foreign manufacturing;

- other factors affecting the toy industry in general; and

- sales of our common stock into the public market.

In addition, the stock market periodically has experienced significant price and
volume fluctuations which may have been unrelated to the operating performance
of particular companies.

FUTURE SALES OF OUR SHARES COULD ADVERSELY AFFECT OUR STOCK PRICE

As of April 26, 1999, there were 7,324,530 shares of our common stock
outstanding. An additional 1,438,201 shares of our common stock are issuable
upon the conversion of our convertible preferred stock and upon the exercise of
currently exercisable warrants and options. If all these shares were issued, we
would have 8,762,731 shares of our common stock outstanding. In addition,
907,373 shares of our common stock are issuable upon the exercise of outstanding
options that are not currently exercisable. Any sale of a substantial number of
shares of our common stock in the public market after this offering, or the
perception that such sales could occur, may adversely affect the market price of
our common stock.

14
<PAGE> 16

OUR MANAGEMENT EXERCISES SUBSTANTIAL CONTROL OVER OUR BUSINESS

As of April 26, 1999, our directors and executive officers beneficially
owned, in the aggregate, 1,373,694 shares of our common stock, representing
approximately 18.0% of the common stock outstanding. Immediately after this
offering, they will beneficially own, in the aggregate, 1,123,694 shares,
representing approximately 11.6% of the common stock then to be outstanding.
Accordingly, if these persons act together, they could exercise considerable
influence over matters requiring approval of our stockholders, including the
election of our Board of Directors.

THE COMPUTER SYSTEMS WE RELY ON MAY NOT ACHIEVE YEAR 2000 READINESS

Many currently installed computer systems and software products are
dependent upon internal calendars coded to accept only two digit entries in the
date code field. These date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. As a result, our
computer systems and software may need to be upgraded to comply with Year 2000
requirements. Otherwise, system failures or miscalculations leading to
disruptions in our operations could occur. We also depend on third parties,
including suppliers and customers, for the operation of our day-to-day business.
We cannot assure you that our efforts or those being taken by these third
parties, if any, will be sufficient to eliminate any Year 2000 problem from the
computer systems used by us or these third parties. In the event that any
modifications or conversions to computer systems required to be Year 2000
compliant are not completed on a timely basis, non-compliant systems or programs
may fail or malfunction, which could disrupt our operations, create additional
costs, divert management's attention and otherwise adversely affect our
business, financial condition and results of operations. For a more detailed
discussion of our efforts to address the Year 2000 problem, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of the Year 2000."

OUR ABILITY TO ISSUE "BLANK CHECK" PREFERRED STOCK AND OUR OBLIGATION TO MAKE
SEVERANCE PAYMENTS COULD PREVENT OR DELAY TAKEOVERS

Our certificate of incorporation authorizes the issuance of "blank check"
preferred stock (that is, preferred stock which our Board of Directors can
create and issue without prior stockholder approval) with rights senior to those
of our common stock. In addition, our employment agreements with two of our
executive officers require us, under certain conditions, to make substantial
severance payments to them if they resign after a change of control. These
provisions could delay or impede a merger, tender offer or other transaction
resulting in a change in control of JAKKS, even if such a transaction would have
significant benefits to our stockholders. As a result, these provisions could
limit the price that certain investors might be willing to pay in the future for
shares of our common stock.

OUR MANAGEMENT HAS BROAD DISCRETION AS TO THE USE OF THE NET PROCEEDS OF THIS
OFFERING

We are allocating a substantial portion of the net proceeds of this
offering to potential acquisitions, working capital and other general corporate
purposes. We do not currently have any binding agreement with respect to any
acquisition of any company or product line that would require the application of
any significant portion of these net proceeds. In addition, our management may
apply our net proceeds to purposes different from those currently contemplated
or change the allocation of our net proceeds among these purposes. Thus, our
management will have substantial discretion with regard to the ultimate use of
the net proceeds of this offering.

15
<PAGE> 17

USE OF PROCEEDS

If we sell the common stock offered hereby at a public offering price of
$23.25 per share, after we deduct the underwriting discount and pay the offering
expenses, JAKKS will receive net proceeds of approximately $45.3 million and the
selling stockholders will receive net proceeds of approximately $5.5 million. If
the underwriters' over-allotment option is exercised in full, JAKKS will receive
additional net proceeds of approximately $6.7 million and the selling
stockholders will receive additional net proceeds of approximately $1.0 million.
We will not receive or benefit from any proceeds from the sale of shares by the
selling stockholders.

We currently intend to use the net proceeds of this offering received by
us, as follows:

- approximately $13.0 million to fund the operation of our joint venture,
including our share of its minimum royalty advance payments and its video
game development and production costs;

- approximately $4.0 million to enhance existing products and to develop
new products for introduction under our current product lines in or after
2000;

- approximately $1.5 million to develop and expand our interactive
wrestling figures product line;

- approximately $1.0 million to design and implement our e-commerce web
site; and

- the balance for the acquisition of new character or product licenses, new
products or product lines or other toy companies or businesses, working
capital and general corporate purposes.

Depending on future events, we may determine at a later time to use our net
proceeds for different purposes or to allocate our net proceeds differently
among the uses described above. Pending these uses, we expect to invest these
funds in short-term, interest-bearing, investment grade securities.

16
<PAGE> 18

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock is traded on the Nasdaq National Market under the symbol
"JAKK." The following table sets forth, for the periods indicated, the range of
high and low closing sale prices for our common stock on the Nasdaq National
Market.

<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON
STOCK
---------------
HIGH LOW
---- ---
<S> <C> <C>
1997:
First quarter........................................... 8 3/4 7 1/8
Second quarter.......................................... 8 1/4 4 1/2
Third quarter........................................... 10 13/16 5 3/4
Fourth quarter.......................................... 11 1/8 7 5/8
1998:
First quarter........................................... 9 3/8 7 3/16
Second quarter.......................................... 12 1/4 7 15/16
Third quarter........................................... 10 15/16 7
Fourth quarter.......................................... 17 5/8 10 11/16
1999:
First quarter........................................... 19 3/4 10 11/16
Second quarter (through April 23)....................... 23 11/16 18 3/8
</TABLE>

As of April 23, 1999, there were approximately 65 holders of record of our
common stock. On April 23, 1999, the last sale price of our common stock
reported on the Nasdaq National Market was $23.25 per share.

We intend to retain our future earnings, if any, to finance the growth and
development of our business, and, accordingly, we do not plan to pay any cash
dividends on our common stock in the foreseeable future. The payment of
dividends on our common stock (other than dividends payable in shares of our
common stock) is prohibited until all accumulated dividends on our preferred
stock are paid in full and sufficient funds to pay the current dividends thereon
are set aside. Moreover, the loan agreements relating to our revolving credit
lines prohibit some of our subsidiaries from distributing funds to us without
the lender's consent.

17
<PAGE> 19

CAPITALIZATION

The following table reflects our actual short-term debt and capitalization
as of December 31, 1998 and as adjusted to reflect the receipt and application
of the estimated net proceeds from the sale of our common stock offered by us
hereby at an assumed public offering price of $23.25 per share, after deducting
the underwriting discount and estimated offering expenses, and the conversion of
$6.0 million principal amount of our convertible debentures into 1,043,479
shares of our common stock.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Current portion of long-term debt........................ $ 60 $ --
======= =======
Long-term debt, net of current portion................... $ 5,940 $ --
------- -------
Stockholders' equity:
Convertible preferred stock, $.001 par value, 5,000
shares authorized; 1,000 shares issued and
outstanding......................................... -- --
Common stock, $.001 par value, 25,000,000 shares
authorized; 6,026,042 shares issued and outstanding,
actual; 9,169,521 shares issued and outstanding, as
adjusted............................................ 6 9
Additional paid-in capital............................. 27,044 77,979
Retained earnings...................................... 10,778 10,778
Unearned compensation from grant of options............ (74) (74)
------- -------
Total stockholders' equity..................... 37,754 88,692
------- -------
Total capitalization..................................... $43,694 $88,692
======= =======
</TABLE>

18
<PAGE> 20

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statement of operations data for each
of the three years in the period ended December 31, 1998 and selected
consolidated balance sheet data as of December 31, 1997 and 1998 have been
derived from our audited consolidated financial statements, which begin on page
F-1 of this prospectus. The following selected consolidated statement of
operations data for the nine-month period ended December 31, 1995 and selected
consolidated balance sheet data as of December 31, 1995 and 1996 have been
derived from our audited consolidated financial statements, which are not
included in this prospectus. You should read the financial data set forth below
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes included in this prospectus, beginning on page F-1.

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
APRIL 1, 1995
(INCEPTION) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1995 1996 1997 1998
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales............................... $6,078 $12,052 $41,945 $85,253
Cost of sales........................... 4,131 7,231 25,875 52,000
------ ------- ------- -------
Gross profit............................ 1,947 4,821 16,070 33,253
Selling, general and administrative
expenses.............................. 1,400 3,612 11,895 24,007
------ ------- ------- -------
Income from operations.................. 547 1,209 4,175 9,246
Interest, net........................... 8 (134) 418 423
Other (income) expense.................. (12) -- 328 591
------ ------- ------- -------
Income before provision for income
taxes................................. 551 1,343 3,429 8,232
Provision for income taxes.............. 115 163 643 1,857
------ ------- ------- -------
Net income.............................. $ 436 $ 1,180 $ 2,786 $ 6,375
====== ======= ======= =======
Basic earnings per share................ $ 0.22 $ 0.36 $ 0.60 $ 1.12
====== ======= ======= =======
Weighted average shares outstanding..... 2,000 3,284 4,621 5,693
====== ======= ======= =======
Diluted earnings per share.............. $ .20 $ 0.34 $ 0.52 $ 0.89
====== ======= ======= =======
Weighted average shares and equivalents
outstanding........................... 2,191 3,504 6,008 7,602
====== ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------
1995 1996 1997 1998
------ ------- ------- -------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 82 $ 6,355 $ 2,536 $12,452
Working capital (deficit).................... (621) 7,824 3,368 13,736
Total assets................................. 4,128 14,200 43,605 58,736
Long-term debt, net of current portion....... 613 -- 6,000 5,940
Total stockholders' equity................... 1,850 11,746 25,959 37,754
</TABLE>

19
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
You should read this section in conjunction with our consolidated financial
statements and the related notes, which begin on page F-1.

OVERVIEW

JAKKS was founded to develop, produce and market children's toys and
related products. We commenced business operations when we assumed operating
control over the toy business of Justin Products Limited ("Justin"), and have
included the results of Justin's operations in our consolidated financial
statements from July 1, 1995, the effective date of that acquisition. The Justin
product lines, which consisted primarily of fashion dolls and accessories and
electronic products for children, accounted for substantially all of our net
sales for the period from April 1, 1995 (inception) to December 31, 1995.

One of our key strategies has been to grow through the acquisition or
licensing of product lines, concepts and characters. In 1996, we expanded our
product lines to include products based on licensed characters and properties,
such as World Wrestling Federation action figures.

We acquired Road Champs in February 1997, and have included the results of
operations of Road Champs from February 1, 1997, the effective date of the
acquisition. We acquired the Child Guidance and Remco trademarks in October
1997, both of which contributed to operations nominally in 1997, but contributed
more significantly to operations commencing in 1998.

Our products currently include (1) toys and action figures featuring
licensed characters, including popular wrestling characters under our World
Wrestling Federation license, (2) die-cast collectible and toy vehicles marketed
under our Road Champs and Remco brand names, (3) pre-school electronic toys
marketed under our Child Guidance brand name, and (4) fashion dolls and related
accessories.

In general, we acquire products or product concepts from others or we
engage unaffiliated third parties to develop our own products, thus minimizing
operating costs. Royalties payable to our developers generally range from 1% to
6% of the wholesale price for each unit of a product sold by us. We expect that
outside inventors will continue to be a source of new products in the future. We
also generate internally new product concepts, for which we pay no royalties.

In June 1998, we formed a joint venture with THQ, a developer, publisher
and distributor of interactive entertainment software, and the joint venture
licensed the rights from Titan Sports to publish World Wrestling Federation
electronic video games on all platforms. The license agreement permits the joint
venture to release these games after November 16, 1999. We expect that the first
game produced under this license will be released in late 1999. We also expect
that JAKKS and THQ will share equally any profits generated by the joint
venture.

20
<PAGE> 22

We contract the manufacture of most of our products to unaffiliated
manufacturers located in China. We sell the finished products on a letter of
credit basis or on open account to our customers, who take title to the goods in
Hong Kong. These methods allow us to reduce certain operating costs and working
capital requirements. A portion of our sales, primarily sales of our Road Champs
products, originate in the United States, so we hold certain inventory in a
warehouse and fulfillment facility operated by an unaffiliated third party. In
addition, we hold inventory of other products from time to time in support of
promotions or other domestic programs with retailers. To date, substantially all
of our sales have been to domestic customers. We intend to expand distribution
of our products into foreign territories and, accordingly, we have (1) engaged a
representative to oversee sales in certain territories, (2) engaged distributors
in certain territories, and (3) established direct relationships with retailers
in certain territories.

We establish reserves for sales allowances, including promotional
allowances and allowances for anticipated defective product returns, at the time
of shipment. The reserves are determined as a percentage of net sales based upon
either historical experience or on estimates or programs agreed upon by our
customers.

Our cost of sales consists primarily of the cost of goods produced for us
by unaffiliated third-party manufacturers, royalties earned by licensors on the
sale of these goods and amortization of the tools, dies and molds owned by us
that are used in the manufacturing process. Other costs include inbound freight
and provisions for obsolescence. Significant factors affecting our cost of sales
as a percentage of net sales include (1) the proportion of net sales generated
by various products with disparate gross margins, (2) the proportion of net
sales made domestically, which typically carry higher gross margins than sales
made in Hong Kong, and (3) the effect of amortizing the fixed cost components of
cost of sales, primarily amortization of tools, dies and molds, over varying
levels of net sales.

Selling, general and administrative expenses include costs directly
associated with the selling process, such as sales commissions, advertising and
travel expenses, as well as general corporate expenses, goodwill and trademark
amortization and product development. We have recorded goodwill of approximately
$11.0 million and trademarks of approximately $14.4 million in connection with
acquisitions made to date. Goodwill is being amortized over a 30-year period,
while trademark acquisition costs are being amortized over periods ranging from
10 to 30 years.

RECENT OPERATING RESULTS

On April 12, 1999, we announced operating results for our first quarter
ended March 31, 1999. Net sales for the quarter in 1999 totaled $25.0 million,
an increase of 126% from $11.0 million for the comparable period in 1998. Net
income in the 1999 quarter was $2.0 million, an increase of 334% from $0.5
million in the 1998 quarter, while diluted earnings per share increased to $0.25
in the 1999 quarter from $0.08 in the 1998 quarter.

21
<PAGE> 23

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
statement of operations data as a percentage of net sales.

<TABLE>
<CAPTION>
APRIL 1, 1995
(INCEPTION) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1995 1996 1997 1998
-------------- ------ ------ ------
<S> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 68.0 60.0 61.7 61.0
----- ----- ----- -----
Gross profit............................ 32.0 40.0 38.3 39.0
Selling, general and administrative
expenses.............................. 23.0 30.0 28.4 28.2
----- ----- ----- -----
Income from operations.................. 9.0 10.0 9.9 10.8
Interest, net........................... 0.1 (1.1) 1.0 0.4
Other (income) expense.................. (0.2) -- 0.7 0.7
----- ----- ----- -----
Income before income taxes.............. 9.1 11.1 8.2 9.7
Provision for income taxes.............. 1.9 1.3 1.6 2.2
----- ----- ----- -----
Net income.............................. 7.2% 9.8% 6.6% 7.5%
===== ===== ===== =====
</TABLE>

YEARS ENDED DECEMBER 31, 1998 AND 1997

Net Sales. Net sales increased $43.4 million, or 103%, to $85.3 million in
1998 from $41.9 million in 1997. The significant growth in net sales was due
primarily to the continuing growth of the World Wrestling Federation action
figure product line with its expanded product offerings and frequent character
releases, as well as to the full year impact on sales of the Remco toy vehicles
and Child Guidance pre-school toys which contributed only nominally in 1997 from
their acquisition date in late October 1997. Contributions made by sales of Road
Champs die-cast toy and collectible vehicles and our holiday doll line were
comparable with the prior year, while our line of radio-controlled vehicles made
only nominal contributions to net sales in 1998.

Gross Profit. Gross profit increased $17.2 million, or 107%, to $33.3
million in 1998, or 39.0% of net sales, from $16.1 million, or 38.3% of net
sales, in 1997. The overall increase in gross profit was attributable to the
significant increase in net sales. The increase in the gross profit margin of
0.7% of net sales was due in part to the changing product mix, which included
products, such as World Wrestling Federation action figures, with higher margins
than some of our other products. The higher margin resulting from lower product
costs was offset in part by higher royalties, and the amortization expense of
molds and tools used in the manufacture of our products was comparable on a
percentage basis.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $12.1 million, or 102%, to $24.0 million, or
28.2% of net sales, in 1998, from $11.9 million, or 28.4% of net sales, in 1997.
The overall significant increase of $12.1 million in these costs was due in
large part to the full year impact of costs associated with our addition of
infrastructure in the United States and Hong Kong in connection with the Road
Champs acquisition, as well as to development and marketing costs of products
under our recently-acquired Child Guidance and Remco trademarks and under
existing products lines, such as the World Wrestling Federation action figures.
Selling, general and administrative expenses decreased modestly as a percentage
of net sales due in part to the fixed nature of certain of these expenses, which
were offset in part by increases in

22
<PAGE> 24

advertising expenses and product development costs in 1998. The overall dollar
increase was also due to the significant increase in net sales with their
proportionate impact on variable selling costs, such as freight and shipping
related expenses, sales commissions, cooperative advertising and travel
expenses. We produced television commercials in support of several of our
products, including World Wrestling Federation action figures in 1998 and 1997,
as well as radio-controlled vehicles in 1997. From time to time, we may increase
our advertising efforts, including the use of more expensive advertising media,
such as television, if we deem it appropriate for particular products.

Interest, Net. We had comparable interest-bearing obligations in 1998 and
in 1997 with our convertible debentures and seller notes issued in connection
with the Child Guidance/Remco and Road Champs acquisitions. In addition, we had
comparable average cash balances during 1998 and 1997.

Provision for Income Taxes. Provision for income taxes included Federal,
state and foreign income taxes in 1998 and also included a tax benefit generated
by operating losses for Federal and state purposes in 1997. Our earnings were
subject to effective tax rates of 22.6% and 18.8% in 1998 and 1997,
respectively, benefiting from a flat 16.5% Hong Kong Corporation Tax on our
income arising in, or derived from, Hong Kong. As of December 31, 1997, we had
federal and state net operating loss carry-forwards of $727,000 and $306,000,
respectively, available to offset future taxable income. The carry-forwards were
fully utilized in 1998. As of December 31, 1998, we had deferred tax assets of
approximately $493,000 for which no allowance has been provided since, in the
opinion of management, realization of the future benefit is probable. In making
this determination, management considered all available evidence, both positive
and negative, as well as the weight and importance given to such evidence.

YEARS ENDED DECEMBER 31, 1997 AND 1996

Net Sales. Net sales increased $29.8 million, or 248%, to $41.9 million in
1997 from $12.1 million in 1996. The significant growth in net sales was due
primarily to the continuing growth of the World Wrestling Federation action
figure product line with its expanded product offerings and frequent character
releases, as well as to the contribution made by sales of Road Champs die-cast
toy and collectible vehicles, which have been included from the effective date
of the acquisition, February 1, 1997. Our holiday doll line performed comparably
with the prior year and our new line of radio-controlled vehicles made modest
contributions to net sales in 1997.

Gross Profit. Gross profit increased $11.3 million, or 233%, to $16.1
million, or 38.3% of net sales, in 1997 from $4.8 million, or 40.0% of net
sales, in 1996. The overall increase in gross profit was attributable to the
significant increase in net sales. The decline in the gross profit margin of
1.7% of net sales was due in part to the changing product mix, which included
products, such as Road Champs and radio-controlled vehicles, with lower margins
than some of our other products.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $8.3 million, or 229%, to $11.9 million, or
28.4% of net sales, in 1997 from $3.6 million, or 30.0% of net sales, in 1996.
The significant overall increase of $8.3 million in such costs was due in large
part to the costs associated with our addition of infrastructure in the United
States and Hong Kong in connection with the Road Champs acquisition. We have
since combined the acquired operations in Hong Kong with those of our existing
operations and may achieve other efficiencies in our operations. As expected,

23
<PAGE> 25

selling, general and administrative expenses decreased as a percentage of net
sales due in part to the fixed nature of certain of these expenses. The overall
dollar increase was also due to the significant increase in net sales with their
proportionate impact on variable selling costs, such as freight and shipping
related expenses, sales commissions and travel expenses. Additionally, we
produced television commercials in support of several of our products, including
World Wrestling Federation action figures and radio-controlled vehicles.

Interest, Net. We had significantly higher interest-bearing obligations in
1997 than in 1996 resulting from the issuance of our convertible debentures and
seller notes in connection with the Road Champs acquisition. In addition, we had
lower average cash balances during 1997 than in 1996 due to significant cash
payments made and working capital employed in connection with the Road Champs
acquisition.

Provision for Income Taxes. Provision for income taxes included state and
foreign income taxes in 1997 and also included a tax benefit generated by
operating losses for Federal and state purposes in 1996. Our earnings were
subject to effective tax rates of 18.8% and 12.2% in 1997 and 1996,
respectively, benefiting from a flat 16.5% Hong Kong Corporation Tax on our
income arising in, or derived from, Hong Kong. As of December 31, 1997, we had
federal and state net operating loss carry-forwards of $727,000 and $306,000,
respectively, available to offset future taxable income.

QUARTERLY FLUCTUATIONS AND SEASONALITY

We have experienced significant quarterly fluctuations in operating results
and anticipate these fluctuations in the future. The operating results for any
quarter are not necessarily indicative of results for any future period. Our
first quarter is typically expected to be the least profitable as a result of
lower net sales but substantially similar fixed operating expenses. This is
consistent with the performance of many companies in the toy industry.

The following tables present our unaudited quarterly results for the years
indicated. The seasonality of our business is reflected in this quarterly
presentation.

<TABLE>
<CAPTION>
1997 1998
----------------------------------- -------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
------ ------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $5,235 $8,059 $15,919 $12,732 $11,030 $16,131 $34,218 $23,873
Gross profit......... 2,058 3,203 6,620 4,189 4,350 6,118 13,242 9,542
Income from
operations......... 173 721 2,021 1,260 768 1,427 5,069 1,983
Income before income
taxes.............. 124 604 1,908 793 610 1,316 4,648 1,658
Net income........... 203 457 1,455 671 462 958 3,434 1,521
Diluted earnings per
share.............. $ 0.05 $ 0.10 $ 0.29 $ 0.11 $ 0.08 $ 0.14 $ 0.45 $ 0.21
Weighted average
shares and
equivalents
outstanding........ 4,332 4,752 5,092 6,953 7,160 7,786 7,872 7,837
</TABLE>

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<PAGE> 26

<TABLE>
<CAPTION>
1997 1998
-------------------------------- --------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
----- ----- ----- ----- ----- ----- ----- -----
(IN PERCENTAGES OF NET SALES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit......... 39.3 39.7 41.6 32.9 39.4 37.9 38.7 40.0
Income from
operations......... 3.3 8.9 12.7 9.9 7.0 8.8 14.8 8.3
Income before income
taxes.............. 2.4 7.5 12.0 6.2 5.5 8.2 13.6 6.9
Net income........... 3.9 5.7 9.1 5.3 4.2 5.9 10.0 6.4
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1998, we had working capital of $13.7 million, as
compared to $3.4 million as of December 31, 1997. This increase was primarily
attributable to operating activities and the placement of our preferred stock in
April 1998.

Operating activities provided net cash of $12.0 million in 1998 as compared
to $3.2 million in 1997. Net cash was provided primarily by net income, non-cash
charges, such as depreciation, amortization and recognition of compensation
expense for options, and increases in operating liabilities, which were offset
in part by increases in accounts receivable and inventory. As of December 31,
1998, we had cash and cash equivalents of $12.5 million.

Our investing activities used net cash of $5.1 million in 1998, as compared
to $24.4 million in 1997, consisting primarily of the purchase of molds and
tooling used in the manufacture of our products, the initial funding of the
World Wrestling Federation joint venture in 1998, trademarks purchased in
connection with the acquisitions of Road Champs and the Child Guidance and Remco
brands, and goodwill acquired in connection with the acquisition of Road Champs
in 1997. As part of our strategy to develop and market new products, we have
entered into various character and product licenses with royalties ranging from
1% to 10% payable on net sales of such products. As of January 1, 1999, these
agreements required future aggregate minimum guarantees of $17.2 million,
exclusive of $1.3 million in advances already paid.

Our financing activities provided net cash of $3.0 million in 1998,
consisting primarily of the issuance of 1,000 shares of our preferred stock at a
price of $5,000 per share in a private placement to two investors, partially
offset by the repayment of various debt issued in connection with the Road
Champs and Child Guidance/Remco trademark acquisitions. In 1997, financing
activities provided net cash of $17.4 million, consisting of the issuance of our
4% Redeemable Convertible Preferred Stock in October 1997, which provided $6.8
million, net of offering costs, the placement of our convertible debentures in
January 1997, which provided $5.5 million, net of offering costs, and various
notes and other debt issued in connection with our acquisitions in 1997, less
approximately $5.2 million in debt repaid.

In January 1997, we received proceeds, net of issuance costs, of
approximately $5.5 million from the issuance of $6.0 million in convertible
debentures, which were converted in March and April 1999 into 1,043,479 shares
of our common stock at a conversion price of $5.75 per share. These debentures
bore interest at 9% per annum, payable monthly, and were due in December 2003.

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<PAGE> 27

In February 1997, we acquired Road Champs for approximately $12.5 million.
Consideration paid at closing was approximately $4.7 million in cash plus the
issuance of 198,020 shares of our common stock (valued at approximately $1.5
million) and the assumption of approximately $766,000 of liabilities. The
balance of the cash consideration ($5.5 million) was paid during the
twelve-month period ended in February 1998. Assets included in the purchase were
molds and tooling, office and warehouse equipment and other operating assets, as
well as license agreements, trade name and goodwill.

In October 1997, we acquired the Child Guidance and Remco trademarks for
approximately $13.4 million. Consideration paid at closing was $10.6 million in
cash plus the issuance of a 10% note payable in the amount of $1.2 million,
which was paid in five quarterly installments ended December 31, 1998. In
addition, we incurred legal and accounting fees of approximately $203,000 and
assumed liabilities of $1.4 million. The acquisition was funded in part by the
issuance of shares of our 4% Redeemable Convertible Preferred Stock, which were
converted into 939,998 shares of our common stock in March 1998. Also in
connection with this acquisition, we entered into a manufacturing and supply
agreement whereby the seller of the trademarks will provide the tools and other
manufacturing resources for the production of products under the trademarks.
That agreement provides for four quarterly payments to the seller of $110,000,
followed by six quarterly payments of $160,000, which commenced on December 31,
1997.

In October 1997, we entered into a credit facility agreement with Norwest
Bank Minnesota, N.A. which provides our Hong Kong subsidiaries with a working
capital line of credit and letters of credit for the purchase of products and
the operation of those subsidiaries. The facility, which expires on May 31,
1999, has an overall limit of $5.0 million, but is subject to other limitations
based on advance rates on letters of credit and open accounts receivable. We
expect to extend the term of this facility or to seek an alternative facility.
As of December 31, 1998, there were no advances outstanding under the facility.

In April 1998, we received $4.7 million in net proceeds from the issuance
of shares of our Series A Cumulative Convertible Preferred Stock to two
investors in a private placement, which are currently convertible into 558,658
shares of our common stock at a conversion price of $8.95 per share. The use of
proceeds was for working capital and general corporate purposes.

We believe that our cash flows from operations, cash and cash equivalents
on hand and cash from the net proceeds of this offering, together with the
availability under the Norwest facility, will be sufficient to meet our working
capital and capital expenditure requirements and provide us with adequate
liquidity to meet our anticipated operating needs for at least the next 12
months. Although operating activities are expected to provide cash, to the
extent we grow significantly in the future, our operating and investing
activities may use cash and, consequently, this growth may require us to obtain
additional sources of financing. There can be no assurance that any necessary
additional financing will be available to us on commercially reasonable terms,
if at all.

EXCHANGE RATES

We sell all of our products in U.S. dollars and pay for all of our
manufacturing costs in either U.S. or Hong Kong dollars. Operating expenses of
the Hong Kong office are paid in Hong Kong dollars. The exchange rate of the
Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong government
since 1983 at HK$7.80 to US$1.00 and,

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<PAGE> 28

accordingly, has not represented a currency exchange risk to the U.S. dollar. We
cannot assure you that the exchange rate between the United States and Hong Kong
currencies will continue to be fixed or that exchange rate fluctuations will not
have a material adverse effect on our business, financial condition or results
of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which is effective for financial statements issued for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and displaying comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes to equity
(net assets) during a period from non-owner sources. To date, we have not had
any transactions that are required to be reported in other comprehensive income.

The FASB recently issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which is effective for financial statements
issued for fiscal years beginning after December 15, 1997. This statement
establishes standards for the way public business enterprises are to report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports. We operate in one reportable segment: the
development, production and marketing of toys and related products.

IMPACT OF THE YEAR 2000

We believe the financial reporting systems of our Hong Kong subsidiaries
are Year 2000 compliant. Their systems were upgraded in 1998 in the normal
course of business with software and hardware which the manufacturer has
represented as being Year 2000 compliant. We are currently in the process of
selecting a new software package in our corporate office which the manufacturer
has represented as being Year 2000 compliant, and we believe it will be
implemented by July 1999. We estimate the cost of this new software, including
implementation and data conversion costs, to be approximately $60,000. Our other
software is generally certified as Year 2000 compliant or is not considered
critical to our operations.

Other than the cost of the new software to be implemented in our corporate
office, we have spent only nominal amounts on the Year 2000 issue, and we do not
expect any significant future expenditures. Although we believe our cost
estimates to be accurate, we cannot assure you that these costs will not
increase or that the proposed solutions will be installed on schedule by the
date estimated.

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<PAGE> 29

We have addressed the Year 2000 preparedness of our critical suppliers and
major customers and related electronic data interfaces with these third parties.
We began in 1998, and are continuing our efforts, to contact critical suppliers
and larger customers to determine whether they are, or will be, compliant by the
Year 2000. Based on our evaluation and testing, these third parties are, or are
expected to be, compliant by the Year 2000. However, we will continue to monitor
the situation and we will formulate contingency plans to resolve
customer-related issues that may arise. At this time we cannot estimate the
impact that noncompliant suppliers and customers may have on us or our level of
operations in the Year 2000. At present, we have not developed contingency
plans, but we will determine whether to develop such plans when our assessment
is completed.

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<PAGE> 30

BUSINESS

COMPANY OVERVIEW

We design, develop, produce and market toys and related products. Our
principal products are (1) action figures and accessories featuring licensed
characters, principally from the World Wrestling Federation, (2) Road Champs
die-cast collectible and toy vehicles and Remco toy vehicles and role-play toys
and accessories, (3) Child Guidance infant and pre-school electronic toys, and
(4) fashion and mini dolls and related accessories. We focus on "evergreen"
branded products that are less subject to market fads or trends and feature
well-known brand names and simpler, lower-priced toys and accessories.

We have been successful at acquiring and capitalizing on "evergreen"
brands, which are well-recognized trademarks or corporate, trade or brand names
with long product histories. We continually review the marketplace to identify
and evaluate evergreen brands that, for various reasons, we believe are
underperforming. We seek to acquire or license these brands and revitalize them
by intensifying the marketing effort to restore and enhance consumer recognition
and retailer interest. We reinforce brands by linking them with other evergreen
brands on our products, adding to the branded product lines new items that we
expect to enjoy greater popularity, eliminating products with fading popularity,
adding new features and improving the functionality of products in the line. We
also try to improve point-of-sale brand visibility through better shelf
positioning and more eye-catching product packaging.

We license much of the intellectual property we use in our business. We
license the World Wrestling Federation trademark, as well as numerous other
trademarks, corporate, trade and brand names and logos from third parties,
including Car and Driver, Caterpillar, Peterson Publishing Co. and B.A.S.S.
Masters. This enables us to use high-profile marks at a lower cost than that
which we would incur if we purchased these marks or developed comparable marks
on our own. By licensing marks, we have access to a far greater range of marks
than those that would be available for purchase, and we maintain the flexibility
to acquire newly-popular marks and to discontinue our use of marks whose
popularity or value has faded. We also license technology produced by
unaffiliated inventors and product developers to improve the design and
functionality of our products. We believe that our experience in the toy
industry, our flexibility and our recent success in developing and marketing
products make us more attractive to toy inventors and developers.

Most of our current products are relatively simple and inexpensive toys. We
believe that these products have proven to have enduring appeal and are less
subject to general economic conditions, toy product fads and trends, changes in
retail distribution channels and other factors. In addition, the simplicity of
these products enables us to choose among a wider range of manufacturers and
affords us greater flexibility in product design, pricing and marketing.

We formed our joint venture with THQ in June 1998 to develop, manufacture
and market, under an exclusive license with Titan Sports, video games based on
World Wrestling Federation characters and themes. The joint venture's first
product is expected to be released at the end of 1999.

We sell our products through our in-house sales staff and independent sales
representatives. Purchasers of our products include toy and discount retail
chain stores,

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<PAGE> 31

department stores, toy specialty stores and wholesalers. The Road Champs
products are also sold to smaller hobby shops, specialty retailers and corporate
accounts, among others. Our five largest customers are Toys 'R Us, Wal-Mart,
Kay-Bee Toys, Kmart and Target.

Over the past few years, the toy industry has experienced substantial
consolidation among both toy companies and toy retailers. We believe that the
ongoing consolidation of toy companies provides us with increased growth
opportunities due to retailers' desire not to be entirely dependent on a few
dominant toy companies. Retailer concentration also enables us to ship products,
manage account relationships and track retail sales more effectively with a
smaller staff.

INDUSTRY OVERVIEW

According to Toy Manufacturers of America, Inc. ("TMA"), the leading
industry trade group, total manufacturers' shipments of toys, excluding video
games, in the U.S., were approximately $15.2 billion in 1998. According to the
TMA, the United States is the world's largest toy market, followed by Japan and
Western Europe. Sales by U.S. toy manufacturers to non-U.S. customers totaled
approximately $5.5 billion in 1997 (the last year for which TMA published this
data). We believe the two largest U.S. toy companies, Mattel and Hasbro,
collectively hold a dominant share of the domestic non-video toy market. In
addition, hundreds of smaller companies compete in the design and development of
new toys, the procurement of character and product licenses, and the improvement
and expansion of previously-introduced products and product lines. In the video
game segment, manufacturers' shipments of video game software were approximately
$3.0 billion in 1998.

BUSINESS STRATEGY

Our business strategy consists of the following elements:

- Expand core products. In 1999, we plan to introduce hundreds of new items
within our core product lines, including World Wrestling Federation
action figures and accessories, Road Champs and Remco vehicles, Child
Guidance toys and our fashion dolls, and to continue to add technological
and functional innovations to our product lines.

- Enter new product categories. Through our participation in the joint
venture, we expect to enter the video game market with its line of World
Wrestling Federation licensed video games. Also, we will continue to use
our extensive experience in the toy industry to evaluate toys and
licenses in new product categories and to develop additional product
lines in 1999 and beyond.

- Pursue strategic acquisitions. Since our inception, we have acquired and
developed evergreen brands through the acquisition of other toy companies
or their assets. These include our Road Champs, Remco and Child Guidance
product lines. We intend to continue our efforts to acquire and develop
evergreen brands through the opportunistic acquisition of other toy
businesses with valuable trademarks or brands and compatible product
lines.

- Acquire character and product licenses. We have acquired the rights to
use many familiar corporate, trade and brand names and logos from third
parties that we use in conjunction with our primary trademarks and
brands. Currently, we have license

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<PAGE> 32

agreements with Titan Sports, Car and Driver, Caterpillar, Petersen
Publishing Co. and B.A.S.S. Masters, among others. We intend to continue
to pursue new licenses from these companies and from other entertainment
and media companies. We also intend to continue to purchase additional
inventions and product concepts through our existing network of product
developers.

- Expand international sales. We believe that foreign markets, especially
in Europe and Canada, offer us the opportunity for growth. We intend to
expand our international sales by capitalizing on our experience and our
relationships with foreign distributors and retailers.

- Exploit our operating efficiencies. We believe that our current
infrastructure and low-overhead operating methods can accommodate
significant growth without a proportionate increase in our operating and
administrative expenses, thereby increasing our operating margins.

- Leverage core product cash flows. Allowing for the natural seasonal
fluctuations in the toy industry, sales of our core products have
historically generated a reliable revenue stream. We expect this trend to
continue and plan to use a portion of these cash flows to fund our entry
into new product lines and consumer markets.

PRODUCTS

- - World Wrestling Federation Action Figures and Accessories

We have a master toy license with Titan Sports pursuant to which we have the
exclusive right, until December 31, 2009, to develop and market a full line of
toy products based on the popular World Wrestling Federation professional
wrestlers in the United States, Canada, Europe (excluding Great Britain),
Australia and Africa. These wrestlers perform throughout the year at live
events that attract large crowds, many of which are broadcast on free and
cable television, including pay-per-view specials. We launched this product
line in 1996 with various series of six-inch articulated action figures that
have movable body parts and feature real-life action sounds from our patented
bone-crunching mechanism that allows the figures' "bones" to crack when they
are bent. The six-inch figures currently make up a substantial portion of the
overall World Wrestling Federation line, which has since grown to include many
other new products. Our strategy has been to release new figures and
accessories frequently to keep the line fresh and to retain the interest of
the consumers.

Following the launch of the action figures, we marketed wrestling ring play
sets and microphones with action background sounds to enhance the play value
of the action figures. Since then, we have continually added new products,
including action figures of varying sizes, such as three-inch sets with
wrestling rings, amplifying microphones, seven-inch collector's editions,
large soft body figures and small bean-bag figures with electronic sound chips
of the popular wrestlers' catch phrases and in-ring banter. Building on the
popularity of World Wrestling Federation and its wrestlers, we have continued
to develop the line with exciting and innovative technological and functional
concepts to enhance the value of the line.

In 1999, we will be introducing a line of 12-inch interactive figures that has
created a new category of toys in the industry. The line will be launched with
a figure based on the World Wrestling Federation World Champion, "Stone Cold
Steve Austin." The figures will be capable of accepting daily downloads of
sound bites from a World

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Wrestling Federation web site, to which we expect to contribute content
compatible with our toy products. We expect this product to create awareness
of our pending presence on the internet in support of our current e-commerce
efforts. Another technological innovation that will be added in 1999 is the
"Titan Tron," featuring proximity-based technology that enables this play set
to recognize the character of specially-equipped wrestling figures in order to
play the wrestler's unique video and theme music with flashing lights. Other
enhancements to the World Wrestling Federation product line include a sweating
functionality in the "Maximum Sweat" line of action figures where the figures,
when filled with water, "sweat" from the brow and chest, adding more realism
and play value to the line. The various World Wrestling Federation products
retail from $5.99 to $49.99.

- - World Wrestling Federation Video Games

In June 1998, we formed a joint venture with THQ, a developer, publisher and
distributor of interactive entertainment software for the leading hardware game
platforms in the home video game market. The joint venture entered into a
license agreement with Titan Sports under which it acquired the exclusive
worldwide right to publish World Wrestling Federation video games on all
hardware platforms. The games will be designed, developed, manufactured and
marketed by the joint venture. We expect that JAKKS and THQ will share equally
any profits generated by the joint venture.

The license agreement with Titan Sports permits the joint venture to release
its first World Wrestling Federation game after November 16, 1999, and we
expect that the first game produced under this license will be released in
late 1999. The term of the license agreement expires on December 31, 2009,
subject to a right of the joint venture to renew the license for an additional
five years under various conditions.

The joint venture will publish titles for the Sony PlayStation and Nintendo 64
consoles, hand-held Game Boy and personal computers ("PCs"). We expect the
joint venture will launch its first product, a video game for the Nintendo 64
platform, and, if possible, a product for Game Boy, in late November or
December 1999. It will also publish titles for new hardware platforms when and
as they are introduced to the market and have established a sufficiently
installed base to support new software. These titles will be marketed to our
existing customers as well as to game, electronics and other specialty stores,
such as Electronics Boutique and Best Buy. The home video game software market
consists both of (1) cartridge-based and CD-ROM-based software for use solely
on dedicated hardware systems, such as Sony PlayStation and Nintendo 64, and
(2) software distributed on CD-ROMs for use on PCs. According to NPD Group, a
leading independent toy industry research firm, Nintendo 64 and Sony
PlayStation accounted for a substantial portion of the installed base of all
hardware platforms and software sales in 1998.

Under non-exclusive licenses with Sony, Nintendo and Sega, the joint venture
will arrange for the manufacture of the CD-ROMs and cartridges. No other
licenses are required for the manufacture of the PC titles. Profit margins for
cartridge products can vary based on the cost of the memory chip used for a
particular title. As software has grown more complex, the trend in the
software industry has been to utilize chips with greater capacity and thus
greater cost. CD-ROMs have significantly lower per unit manufacturing costs
than cartridge-based products. However, these savings may be offset by
typically higher development costs for titles published on CD-ROMs; these
higher

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<PAGE> 34

costs result from increasing and enhancing content to take advantage of the
greater storage capacity of CD-ROMs.

Wrestling video games have demonstrated consistent popularity, with two
wrestling-theme video games among the top 10 video games, in terms of unit
sales volumes, in 1998. Approximately 2.3 million units of these two games
were sold in 1998, at retail prices ranging from approximately $42 to $60. We
believe that the success of the World Wrestling Federation titles is dependent
on the graphic look and feel of the software, the depth and variation of game
play and the popularity of the World Wrestling Federation. We believe that as
a franchise property, the World Wrestling Federation titles will have brand
recognition and sustainable consumer, appeal which may allow the joint venture
to use titles over an extended period of time through the release of sequels
and extensions and to re-release such products at different price points in
the future. Also, as new hardware platforms are introduced, software for these
platforms requires new standards of design and technology to fully exploit
these platforms' capabilities and requires that software developers devote
substantial resources to product design and development.

The joint venture will use external software developers to conceptualize and
develop titles. We expect that, generally, these developers will receive
advances based on specific development milestones and royalties in excess of
the advances based on a fixed amount per unit sold or on a percentage,
typically ranging from 8% to 12%, of net sales. Upon completion of
development, each title will be extensively "play-tested" by us and THQ and
sent to the manufacturer for its review and approval.

- - Road Champs Die-Cast Collectible and Toy Vehicles

The Road Champs product line consists of highly-detailed, die-cast replicas of
new and classic cars, trucks, motorcycles, emergency vehicles and service
vehicles, primarily in 1/43 scale (including police cars, fire trucks and
ambulances), buses and aircraft (including propeller planes, jets and
helicopters). As a part of the Road Champs acquisition in February 1997, we
acquired the right to produce the Road Champs line of die-cast and collectible
vehicle replicas, including various well-known vehicles from Ford, Chevrolet
and Jeep, as well as the right to use familiar corporate names on the die-cast
vehicles, such as Pepsi and Hershey. Recently, we licensed the right to
reproduce vehicles featured on the covers of automotive magazines, such as Rod
& Custom and Car and Driver, and to market vehicles with the B.A.S.S. Masters
logo and replicas of the World Wrestling Federation Attitude Racing NHRA Team.
We believe that these licenses increase the perceived value of the products
and enhance their marketability. Under the terms of these licenses, which
expire on various dates through May 10, 2001 (many of which include automatic
annual extensions without affirmative action taken by either party), we pay
the licensor a royalty based on our sales of each product bearing such
licensed name. While we are not required to pay any royalty on some of the
products, the royalties on a majority of the products range from 1% to 9% of
sales. The Road Champs products are produced by unaffiliated foreign
manufacturers. These products are sold individually, retailing from $2.99 to
$7.99 each, and in play sets which retail from $9.99 to $24.99 each.

We have divided the markets of this product line into adult collectible and
children's toy segments, recognizing the specific needs of these different
consumers. Each collector product features a collector case in which to store
and display the vehicle and a certificate of authenticity. We produce a
limited number, generally not more than 10,000, of each distinctive product to
enhance its collectibility. This line presently has

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<PAGE> 35

numerous themes, including Anniversary Collection, Police, Then & Now, World
War II Fighter Planes and Classics Scenes, with die-cast scenic accessories,
such as 1950's soda machines or gas pumps. The toy segment is marketed by
focusing on size and value with its slogan "Bigger is Better." Our die-cast
vehicles are 1/43 scale, which are larger than most other competing die-cast
vehicles. The size appeals to collectors, since it enables us to show greater
detail on the vehicles, and to children and their parents, who perceive a
greater value in the larger size. The toys are packaged on two-pack blister
cards, further highlighting the value. In addition, series were created to
encourage children to collect our vehicles.

- - Remco Toy Vehicles and Role Play

Our Remco toy line includes toy vehicles, role play and other toys. Our toy
vehicle line is comprised of a large assortment of rugged die-cast and plastic
vehicles. Marketed under a sub-brand called "Tuff Ones," our toy vehicles
range in size from 4 3/4" to big-wheeled 17" vehicles. We have revitalized
them considerably by creating new packaging, redecorating the vehicles and
adding highly-recognized licensed names, such as NASA, Pennzoil, U-Haul and
Castrol, among others. The breadth of the line is extensive, with themes
ranging from emergency, fire, farm and construction, to racing and jungle
adventure. In 1999, we expanded our Remco vehicle line by adding an innovative
line of trucks, called "Real Ones," which enhances the traditional play
pattern by allowing children to drain an oil tanker, empty a dump truck full
of dirt, or dispose of an entire load of garbage without making a mess. We
accomplished this by enclosing real materials inside the trucks in a way that
makes vehicle play more fun without the mess.

We offer a variety of branded and non-branded role play sets in this new
category under the Remco name. Themes include Caterpillar construction,
B.A.S.S. Masters fishing, police, fire and NASA. Additionally, capitalizing on
the popularity of World Wrestling Federation, we will be introducing a World
Wrestling Federation role play product which will give children the
opportunity to dress like and imagine being their favorite wrestling
superstars.

We market Remco "Fight Back Action Fishing Poles" under the B.A.S.S. Masters
license for fun with simulated fishing action.

- - Child Guidance Infant and Pre-school Toys

We acquired the Child Guidance trade name in 1997 to accelerate our entry into
the infant/pre-school toy category. This category has been recently dominated
by higher-priced licensed products, which creates an opportunity for us to
sell our lower price, high value line of pre-school toys. Our line of
pre-school electronic toys features products that enhance sensory stimulation
and learning through play, while offering value to the trade as well as to the
consumer. Our products are designed for children ages two and under. We have
combined the fun of music, lights, motion and sound with the early
introduction of numbers, letters, shape and color recognition, all at a value
price. The line consists of more than 50 products that are marketed in
continually updated "try me" interactive packaging that allows the consumers
to sample the product prior to purchase. We support the products with
extensive advertising in popular magazines and other publications, focusing on
parenting, women's and family publications, including Good Housekeeping. These
products carry the Good Housekeeping Seal of Approval(R). Our current products
include the Wiggle Waggle Caterpillar and Musical Pony pull-along toys, which
were introduced in 1998. Other 1998 noteworthy products include

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Musical Magnets, which were recognized as one of the top toys of the year by
Sesame Street Parent Magazine. In 1999, we have extended the Wiggle Waggle
line to include the Wiggle Waggle Duck, which features spinning action. We
have added approximately 30 other new products to the line in 1999. We have
recently expanded the distribution of the Child Guidance products to include
more upscale and specialty retailers. Child Guidance products are priced at
retail from $2.99 to $14.99.

In addition to creating products internally, we often acquire products and
concepts from numerous toy inventors with whom we have ongoing relationships.
License agreements for products and concepts call for royalties ranging from
1% to 6% of net sales, and some may require minimum guarantees and advances.
Both development of internally-created items and acquiring items are ongoing
efforts. In either case, it may take as long as nine months for an item to
reach the market. As part of an effort to keep the product line fresh and to
extend the life of the item, we create new packaging, change sound chips and
change product colors from time to time.

- - Fashion/Mini Dolls

We produce various proprietary fashion dolls and accessories for children
between the ages of three and 10. The product lines include: (1) 11 1/2"
fashion dolls customized with high-fashion designs that correspond with
particular holidays, events or themes, such as Christmas, birthdays,
Fairytale, Victorian Romance and Gibson Girl Romance; and (2) 6 1/2" fashion
dolls based on children's classic fairy tales and holidays. In 1999, we intend
to add to our doll line by producing additional dolls based on other
theme-based play sets.

We have introduced two new line extensions for sale in 1999: (1) 15 1/2"
fashion dolls that have movable body parts and intricate hairstyles and that
have themes such as Era of Elegance, Renaissance and Ballet; and (2) our
American Sisters baby dolls in paired 12" and 8" sizes with themes like Off to
School, Ballet Recital, Birthday Surprise and Tea Party Fun. These dolls will
be priced at retail from $9.99 to $24.99.

Our in-house product developers originate the design and functionality of most
of our fashion dolls. In many cases, they work with retailers and incorporate
their input on doll characteristics, packaging and other design elements to
create exclusive product lines for them.

SALES, MARKETING AND DISTRIBUTION

We sell all of our products through our own in-house sales staff and
independent sales representatives. Purchasers of our products include toy and
discount retail chain stores, department stores, toy specialty stores and
wholesalers. The Road Champs product line is also sold to smaller hobby shops,
specialty retailers and corporate accounts, among others. Our five largest
customers are Toys 'R Us, Wal-Mart, Kay-Bee Toys, Kmart and Target, which
accounted for approximately 61.7% of our net sales in 1997 and 69.6% in 1998.
Except for purchase orders relating to products on order, we do not have written
agreements with our customers. Instead, we generally sell products to our
customers pursuant to letters of credit or, in some cases, on open account with
payment terms typically varying from 30 to 90 days. From time to time, we allow
our customers credits against future purchases from us in order to facilitate
their retail markdown and sales of slow-moving inventory.

35
<PAGE> 37

We obtain, directly, or through our sales representatives, orders for our
products from our customers and arrange for the manufacture of these products as
discussed below. Cancellations are generally made in writing, and we take
appropriate steps to notify our manufacturers of such cancellations. Based upon
the sales of the Road Champs products in the past, we expect approximately half
of the Road Champs products to be sold domestically through a third-party
warehouse and fulfillment center in Seattle, Washington, where we store
inventory for sale.

We maintain a full-time sales and marketing staff, many of whom make
on-site visits to customers for the purpose of soliciting orders for products.
We also retain a number of independent sales representatives to sell and promote
our products, both domestically and internationally. Together with retailers, we
sometimes test the consumer acceptance of new products in selected markets
before committing resources to large-scale production.

We generally budget approximately 5% of our net sales for advertising and
promotion of our products. We produce and broadcast television commercials for
our World Wrestling Federation action figure line. We may also advertise some of
our other products on television, if we expect that the resulting increase in
our net sales will justify the relatively high cost of television advertising.
We advertise our products in trade and consumer magazines and other
publications, market our products at major and regional toy trade shows,
conventions and exhibitions and carry on cooperative advertising with toy
retailers and other customers.

Outside of the United States, we currently sell our products primarily in
Canada, Great Britain, Latin America, Australia and Japan. Sales of our products
abroad accounted for approximately 8.9% of our net sales in 1997 and 7.4% in
1998. We believe that foreign markets present an attractive opportunity, and we
plan to intensify our marketing efforts and expand our distribution channels
abroad.

PRODUCT DEVELOPMENT

Each of our product lines has an in-house manager responsible for product
development, including identifying and evaluating inventor products and concepts
and other opportunities to enhance or expand existing product lines or to enter
new product categories. In addition, we create proprietary products, the
principal source of products for our fashion doll line, and products to more
fully exploit our concept and character licenses. While we do have the
capability to create and develop products from inception to production, we use
third parties to provide a substantial portion of the sculpting, sample making,
illustration and package design required for our products in order to
accommodate our increasing product innovations and introductions. Typically, the
development process takes from three to nine months to culminate in production
of the products for shipment to our customers.

We generally acquire our product concepts from unaffiliated third parties.
If we accept and develop a third-party's concept for new toys, we generally pay
a royalty on the toys developed from this concept that are sold, and may, on an
individual basis, guarantee a minimum royalty. Royalties payable to developers
generally range from 1% to 6% of the wholesale sales price for each unit of a
product sold by us. We believe that utilizing experienced third-party inventors
gives us access to a wide range of development talent. We currently work with
numerous toy inventors and designers for the development of new products and the
enhancement of existing products. We believe that toy inventors and designers
have come to appreciate our practice of acting quickly and decisively to acquire

36
<PAGE> 38

and market licensed products. In addition, we believe that our experience in the
toy industry, our flexibility and our recent success in developing and marketing
products make us more attractive to toy inventors and developers than some of
our competitors.

Safety testing of our products is done at the manufacturers' facilities by
an engineer employed by us or independent third-party contractors engaged by us,
and is designed to meet safety regulations imposed by federal and state
governmental authorities. We also monitor quality assurance procedures for our
products for safety purposes.

MANUFACTURING AND SUPPLIES

Our products are currently produced by manufacturers which we choose on the
basis of quality, reliability and price. Consistent with industry practice, the
use of third-party manufacturers enables us to avoid incurring fixed
manufacturing costs. All of the manufacturing services performed overseas for us
are paid for either by letter of credit or on open account with the
manufacturers. To date, we have not experienced any material delays in the
delivery of our products; however, delivery schedules are subject to various
factors beyond our control, and any delays in the future could adversely affect
our sales. Currently, we have ongoing relationships with approximately 15
manufacturers. We believe that alternative sources of supply are available,
although we cannot assure you that adequate supplies of manufactured products
can be obtained.

Although we do not conduct the day-to-day manufacturing of our products, we
participate in the design of the product prototype and production tooling and
molds for the products we develop or acquire, and we seek to ensure quality
control by actively reviewing the production process and testing the products
produced by our manufacturers. We employ quality control inspectors who rotate
among our manufacturers' factories to monitor production.

The principal raw materials used in the production and sale of our toy
products are zinc alloy, plastics, plush, printed fabrics, paper products and
electronic components, all of which are currently available at reasonable prices
from a variety of sources. Although we do not manufacture our products, we own
the molds and tooling used in the manufacturing process, and these are
transferable among manufacturers if we choose to employ alternative
manufacturers.

TRADEMARKS AND COPYRIGHTS

Most of our products are produced and sold under trademarks owned by or
licensed to us. We typically register our properties, and seek protection under
the trademark, copyright and patent laws of the United States and other
countries where our products are produced or sold. These intellectual property
rights can be significant assets. Accordingly, while we believe we are
sufficiently protected, the loss of some of these rights could have an adverse
effect on our business, financial condition and results of operations.

COMPETITION

Competition in the toy industry is intense. Many of our competitors have
greater financial resources, stronger name recognition and larger sales,
marketing and product development departments and benefit from greater economies
of scale. These factors, among others, may enable our competitors to market
their products at lower prices or on terms more advantageous to customers than
those we could offer for our competitive

37
<PAGE> 39

products. Competition often extends to the procurement of entertainment and
product licenses, as well as to the marketing and distribution of products and
the obtaining of adequate shelf space. Competition may result in price
reductions, reduced gross margins and loss of market share, any of which could
have a material adverse effect on our business, financial condition and results
of operations. In each of our product lines we compete against one or both of
the toy industry's two dominant companies, Mattel, Inc. and Hasbro, Inc. In
addition, we compete, in our action figures line, with the Toy-Biz division of
Marvel Enterprises, Inc. and, in our toy vehicle lines, with Racing Champions,
Inc. We also compete with numerous smaller domestic and foreign toy
manufacturers, importers and marketers in each of our product categories. We
expect that the joint venture's principal competition in the video game market
will be Electronic Arts, which will produce video games based on World
Championship Wrestling characters, and Acclaim Entertainment, Inc.

SEASONALITY AND BACKLOG

Sales of toy products are seasonal. In 1998, approximately 68.1% our sales
were made in the third and fourth quarters. Generally, the first quarter is the
period of lowest shipments and sales in our business and the toy industry
generally and therefore the least profitable due to various fixed costs.
Seasonality factors may cause our operating results to fluctuate significantly
from quarter to quarter. Due to these fluctuations, our results of operations
for any quarter may vary significantly. Our results of operations may also
fluctuate as a result of factors such as the timing of new products (and
expenses incurred in connection therewith) introduced by us or our competitors,
the advertising activities of our competitors, delivery schedules set by our
customers and the emergence of new market entrants. We believe, however, that
the low retail price product lines that we sell may be less subject to seasonal
fluctuations than higher priced toy products.

We ship products in accordance with delivery schedules specified by our
customers, which usually request delivery of their products within three to six
months of the date of their orders. Because customer orders may be canceled at
any time without penalty, our backlog may not accurately indicate sales for any
future period.

GOVERNMENT AND INDUSTRY REGULATION

Our products are subject to the provisions of the Consumer Product Safety
Act ("CPSA"), the Federal Hazardous Substances Act ("FHSA"), the Flammable
Fabrics Act ("FFA") and the regulations promulgated thereunder. The CPSA and the
FHSA enable the Consumer Product Safety Commission to exclude from the market
consumer products that fail to comply with applicable product safety regulations
or otherwise create a substantial risk of injury, and articles that contain
excessive amounts of a banned hazardous substance. The FFA enables the Consumer
Products Safety Commission to regulate and enforce flammability standards for
fabrics used in consumer products. The Consumer Products Safety Commission may
also require the repurchase by the manufacturer of articles which are banned.
Similar laws exist in some states and cities and in various international
markets. We maintain a quality control program designed to ensure compliance
with all applicable laws. In addition, many of our Child Guidance products are
sold under the Good Housekeeping Seal of Approval(R). To qualify for this
designation, our products are tested by Good Housekeeping to ensure compliance
with its product safety and quality standards.

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<PAGE> 40

EMPLOYEES

As of April 26, 1999, we employed 70 persons, including three executive
officers. Forty of our employees were located in the United States as of such
date, while the remaining 30 were located in Hong Kong. We believe that we have
good relationships with our employees. None of our employees is represented by a
union.

PROPERTIES

Our principal executive offices occupy approximately 9,000 square feet of
space in Malibu, California under a lease expiring on August 31, 2002. We lease
showroom and office space of approximately 4,100 square feet at the
International Toy Center in New York City. We also have leased office and
showroom space of approximately 5,000 square feet in Hong Kong from which we
oversee our China-based third-party manufacturing operations, and we have
smaller leased sites in Dallas, Texas and Union, New Jersey. We believe that our
facilities in the United States and Hong Kong are adequate for our reasonably
foreseeable future needs.

ENVIRONMENTAL ISSUES

We are subject to legal and financial obligations under environmental,
health and safety laws in the United States and in other jurisdictions where we
operate. We are not currently aware of any material environmental liabilities
associated with any of our operations. We do not believe that any environmental
obligations will have a material adverse effect on our business, financial
condition or results of operations.

LEGAL PROCEEDINGS; INSURANCE

We are not a party to, nor is our property the subject of, any pending
legal proceeding, other than routine litigation that is incidental to our
business. We maintain comprehensive liability insurance with total coverage of
$12.0 million to reduce our exposure from product liability, consumer protection
and other claims or legal proceedings.

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<PAGE> 41

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our directors and executive officers are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Jack Friedman 59 Chairman and Chief Executive Officer
Stephen G. Berman 34 Chief Operating Officer, President,
Secretary and Director
Joel M. Bennett 37 Chief Financial Officer
Robert E. Glick 53 Director
Michael G. Miller 51 Director
Murray L. Skala 52 Director
</TABLE>

Jack Friedman has been our Chairman and Chief Executive Officer since
co-founding JAKKS with Mr. Berman in January 1995. Until December 31, 1998, he
was also our President. 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. Berman has been our Chief Operating Officer and Secretary and
one of our directors since co-founding JAKKS with Mr. Friedman in January 1995.
Since January 1, 1999, he has also served as our President. From our inception
until December 31, 1998, Mr. Berman was also our Executive Vice President. 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. Bennett joined us in September 1995 as Chief Financial Officer.
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.

Robert E. Glick has been one of our directors since October 1996. 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.

Michael G. Miller has been one of our directors since February 1996. 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.

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<PAGE> 42

Murray L. Skala has been one of our directors since October 1995. Since
1976, Mr. Skala has been a partner of the law firm Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP, our general counsel. Mr. Skala is a director of Quintel
Entertainment, Inc., a publicly-held company in the business of
telecommunications services and entertainment. Mr. Skala has also served as a
director of other public companies, including THQ from January 1991 to January
1997, Katz Digital Technologies, Inc., a digital prepress and printing company,
from December 1995 to December 1998, and Grand Toys International, Inc. from
1993 to 1994.

All directors hold office until the next annual meeting of stockholders and
until their successors are elected and qualified. Directors currently receive no
cash compensation for serving on the Board, but are reimbursed for reasonable
expenses incurred in attending meetings. Directors who are not employees are
entitled to receive options to purchase shares of our common stock upon their
initial election as a director and annually while they serve as directors. The
holders of our preferred stock have the right, if we miss two quarterly
dividends, to designate two persons to be added to our Board of Directors.
Officers are elected annually by the Board and serve at the discretion of the
Board.

COMMITTEES OF THE BOARD OF DIRECTORS

We have an Audit Committee, a Compensation Committee and a Stock Option
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
recommend the appointment of our independent certified public accountants and to
review the scope and effect of such audits. Messrs. Glick, Miller and Skala 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, other than our Third Amended and Restated 1995 Stock Option
Plan (the "Option Plan"). Messrs. Friedman, Miller and Skala are the current
members of the Compensation Committee.

Stock Option Committee. The function of the Stock Option Committee is to
determine the recipients of and the size of awards granted under the Option
Plan. Messrs. Glick and Miller, both of whom are non-employee directors, are the
current members of the Stock Option Committee.

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<PAGE> 43

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information as of April 26, 1999
with respect to the beneficial ownership of our common stock by (1) each of our
directors, (2) each Named Officer, (3) all our directors and executive officers
as a group and (4) each person known by us to own beneficially more than 5% of
the outstanding shares of our common stock.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO THIS SHARES OWNED AFTER
OFFERING OFFERED THIS OFFERING
NAME AND ADDRESS OF -------------------- --------- --------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Jack Friedman(1)(2).......... 959,655(4) 13.0 192,000 767,655(4) 8.1
Stephen G. Berman(1)(2)...... 171,165(5) 2.3 58,000 113,165(5) 1.2
Joel M. Bennett(1)........... 24,250(6) * 0 24,250(6) *
Robert E. Glick(1)........... 67,025(7) * 0 67,025(7) *
Michael G. Miller(1)......... 60,025(8) * 0 60,025(8) *
Murray L. Skala(1)........... 158,446(9) 2.1 0 158,446(9) 1.7
Renaissance Capital Growth &
Income Fund III, Inc.(3)... 596,065(10) 8.1 0 596,065(10) 6.3
Renaissance US Growth &
Income Trust PLC(3)........ 521,739 7.1 0 521,739 5.5
All directors and executive
officers as a group (6
persons)................... 1,373,694(11) 18.0 250,000 1,123,694(11) 11.6
</TABLE>

- -------------------------
* Less than 1% of our outstanding shares.

(1) The address of Messrs. Friedman, Berman, Bennett, Glick, Miller and Skala
is 22761 Pacific Coast Highway, Malibu, California 90265.

(2) If the underwriters' over-allotment option is exercised in full, Mr.
Friedman will sell 227,000 shares and will beneficially own 732,655 shares
(7.7% of the outstanding shares) after this offering, and Mr. Berman will
sell 68,000 shares and will beneficially own 103,165 shares (1.1% of the
outstanding shares) after this offering.

(3) The address of this beneficial owner is 8080 N. Central Parkway, Dallas, TX
75026.

(4) Includes 66,872 shares held in trusts for the benefit of children of Mr.
Friedman. Also includes 41,667 shares which Mr. Friedman may purchase upon
the exercise of certain stock options.

(5) Includes 41,667 shares which Mr. Berman may purchase upon the exercise of
certain stock options.

(6) Includes 23,250 shares which Mr. Bennett may purchase upon the exercise of
certain stock options.

(7) Includes 60,025 shares which Mr. Glick may purchase upon the exercise of
certain stock options.

(8) Represents shares which Mr. Miller may purchase upon the exercise of
certain stock options.

(9) Includes 65,450 shares which Mr. Skala may purchase upon the exercise of
certain stock options and 66,872 shares held by Mr. Skala as trustee under
trusts for the benefit of children of Mr. Friedman.

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<PAGE> 44

(10) Includes 335,195 shares which Renaissance Capital Growth & Income Fund III,
Inc. has the right to acquire upon the conversion of 600 shares of our
preferred stock held by it (at a conversion price of $8.95 per share).

(11) Includes 66,872 shares held in trusts for the benefit of children of Mr.
Friedman and an aggregate of 292,084 shares which the directors and
executive officers may purchase upon the exercise of certain stock options.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

One of our directors, Murray L. Skala, is a partner in the law firm of
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, which has performed, and is
expected to continue to perform, legal services for us.

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<PAGE> 45

DESCRIPTION OF SECURITIES

GENERAL

We are currently authorized to issue 25,000,000 shares of common stock, par
value $.001 per share, and 1,000,000 shares of preferred stock, par value $.001
per share. As of April 26, 1999, 7,324,530 shares of our common stock were
outstanding and owned of record by approximately 65 persons, and 1,000 shares of
our preferred stock, consisting of Series A Cumulative Convertible Preferred
Stock, were outstanding. After we issue an additional 2,100,000 shares in this
offering, 9,424,530 shares will be outstanding.

COMMON STOCK

Holders of our common stock are entitled to one vote for each share on all
matters submitted to a vote of our stockholders, including the election of
directors. Our certificate of incorporation does not provide for cumulative
voting. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. Holders of common stock will be
entitled to receive ratably dividends, if any, declared from time to time by our
Board of Directors, and will be entitled to receive ratably all of our assets
available for distribution to them upon liquidation. Holders of common stock
have no preemptive, subscription or redemption rights. All the currently
outstanding shares of our common stock are, and all shares of our common stock
offered by us hereby, upon issuance and sale, will be, fully paid and
nonassessable.

PREFERRED STOCK

Our certificate of incorporation currently provides that we are authorized
to issue up to 1,000,000 shares of "blank check" preferred stock. Without any
further approval by our stockholders, our Board of Directors may designate and
authorize the issuance, upon the terms and conditions it may determine, of one
or more classes or series of preferred stock with prescribed preferential
dividend and liquidation rights, voting, conversion, redemption and other
rights. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of the common
stock. Under certain circumstances, the issuance of preferred stock could also
make it more difficult for a third party to gain control of JAKKS, discourage
bids for the common stock at a premium or otherwise adversely affect the market
price of our common stock.

On April 1, 1998, we issued and sold 1,000 shares of our Series A
Cumulative Convertible Preferred Stock in a private placement to two investment
funds at a price of $5,000 per share. The holders of our preferred stock are
entitled to receive quarterly payments of preferential dividends at an annual
rate of $350 per share and to convert their shares into our common stock based
on a current conversion price of $8.95 (subject to adjustment for certain
dilutive events and specified transactions). The preferred stock is redeemable,
in whole, but not in part, at its liquidation value (together with all accrued
and unpaid dividends) at our option if (1) our common stock is then traded on
the Nasdaq National Market or the New York Stock Exchange; (2) the average
"Current Market Price" (as defined) of our common stock over a period of 20
trading days equals or exceeds $20.00; and (3) the shares of our common stock
issuable upon conversion of the preferred stock are subject to a registration
statement under the Securities Act that has

44
<PAGE> 46

become effective and permits the sale of such shares on a continuous or delayed
basis. The preferred stock is also redeemable at its liquidation value (together
with accrued and unpaid dividends) at the option of any holder upon the
occurrence of specified "Events of Redemption," including an amendment to our
certificate of incorporation or our by-laws affecting our Board of Directors,
our merger or consolidation with another company, or a sale of all or
substantially all of our assets. The holders of the preferred stock have no
voting rights, other than as required by the Delaware General Corporation Law,
class voting with respect to certain amendments of our certificate of
incorporation or by-laws or the authorization or issuance of certain shares of
our capital stock. In addition, if at any time dividends on our preferred stock
for two quarters are not paid in full, they may, subject to certain limitations,
designate or elect two additional directors.

CONVERTIBLE DEBENTURES

On December 31, 1996, we issued and sold at par $6.0 million principal
amount of our 9.00% Convertible Debentures due December 31, 2003 in a private
placement to two investment funds. The convertible debentures bore interest,
payable monthly, at a rate of 9% per annum on the outstanding principal amount.
The entire principal amount of the convertible debentures were converted in
March and April 1999 into 1,043,479 shares of our common stock at a conversion
price of $5.75 per share.

WARRANTS

In connection with our initial public offering in May 1996, we issued to
the representatives of the underwriters warrants to purchase, until May 1, 2001,
an aggregate of 150,000 shares of our common stock, of which warrants to
purchase 78,993 shares at a current exercise price of $8.4375 per share remain
outstanding as of April 26, 1999.

For its assistance in connection with our sale of the convertible
debentures in January 1997, we issued to an investment banking firm a warrant to
purchase, until January 8, 2002, an aggregate of 150,000 shares of our common
stock, of which warrants to purchase 74,013 shares at a current exercise price
of $6.75 per share remain outstanding as of April 26, 1999.

In connection with a public offering of our common stock in May 1997, we
issued to the underwriter warrants to purchase, until May 1, 2002, up to 60,000
shares of our common stock at an exercise price of $7.475 per share, all of
which have been exercised.

In connection with the formation of our joint venture, we agreed to issue
to THQ a warrant to purchase, at any time during a five year period, up to
150,000 shares of our common stock and to issue to Titan Sports and a related
party warrants to purchase, at any time during a 10 year period, up to 125,000
shares of our common stock. These warrants will have an exercise price of $10.00
per share. We also agreed to grant the holders of these warrants certain
registration rights under the Securities Act. To date, we have not issued and
delivered these warrants, although we remain obligated to do so.

SECURITIES ACT REGISTRATION

All of the shares of our common stock issued or issuable upon the
conversion of our convertible preferred stock and upon the exercise of our
outstanding warrants and options have been registered under the Securities Act.

TRANSFER AGENT

The transfer agent for our common stock is U.S. Stock Transfer Corporation,
Glendale, California.

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<PAGE> 47

UNDERWRITING

The underwriters named below, acting through their representatives, Advest,
Inc., Morgan Keegan & Company, Inc. and Southwest Securities, Inc. (the
"Representatives"), have severally agreed with us and the selling stockholders,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from us and the selling stockholders the number of shares of our common stock
set forth opposite their names below. The underwriters are committed to purchase
and pay for all such shares, if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Advest, Inc.................................................
Morgan Keegan & Company, Inc................................
Southwest Securities, Inc...................................

Total 2,350,000
=========
</TABLE>

The Representatives have advised us that the underwriters propose to offer
these shares of common stock to the public at the public offering price set
forth on the cover page of this prospectus and to certain dealers at this price
less a concession of not more than $ per share, of which $ may be
reallowed to other dealers. After the public offering, the public offering
price, concession and reallowance to dealers may be reduced by the underwriters.
No such reduction will change the amount of proceeds to be received by us or the
selling stockholders as set forth on the cover page of this prospectus.

We and the selling stockholders have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 352,500 additional shares of common stock at the same price per
share as is being paid for the 2,350,000 shares that the underwriters have
committed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the first 2,350,000 shares offered hereby. If any of these
additional shares are purchased, they will be sold by the underwriters on the
same terms as those on which the first 2,350,000 shares are sold.

The following table presents certain information about compensation that
the underwriters will receive in connection with this offering:

<TABLE>
<CAPTION>
TOTAL
-------------------
PER SHARE MINIMUM* MAXIMUM*
--------- -------- --------
<S> <C> <C> <C>
JAKKS................................... $ $ $
Selling Stockholders.................... $ $ $
</TABLE>

*Minimum amounts assume that the over-allotment option is not exercised;
maximum amounts assume that the over-allotment option is exercised in full.

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<PAGE> 48

In addition, JAKKS will pay to Advest, Inc., upon completion of this
offering, a financial advisory fee in the amount of $50,000. We have also agreed
that upon the completion of this offering and for a nine month period
thereafter, Advest, Inc. will have the right of first offer to provide us with
investment banking services in connection with subsequent public offerings of
our equity securities and merger and acquisition advisory services relating to a
sale or other disposition of all our securities or a material portion of our
assets. In connection with such investment banking or advisory services, prior
to contacting any other investment banking or financial advisory firms, we will
first provide Advest, Inc. with a description of the contemplated services and
invite Advest, Inc. to submit to us a proposal for providing such services. If
its fees are no less favorable than those submitted by another nationally
recognized investment banking or advisory firm, we will engage Advest, Inc.
exclusively to provide such services.

We expect the total expenses incurred in connection with this offering
(excluding the underwriting discount discussed above) to be $550,000. JAKKS is
obligated to pay all these expenses; the selling stockholders will not pay any
of these expenses.

The Underwriting Agreement contains covenants of indemnity among us, the
selling stockholders and the underwriters against certain civil liabilities,
including liabilities arising under the Securities Act.

All of our directors and officers have agreed that until 180 days after the
date of this prospectus (the "Lock-up Period") they will not, without the prior
written consent of Advest, Inc., offer, contract to sell, sell, encumber, grant
any option for the sale of, distribute, transfer or dispose of any of our common
stock or any options, warrants or securities convertible into or exercisable or
exchangeable for shares of our common stock now owned or hereafter acquired by
them or with respect to which they have or acquire the power of disposition
(other than shares of common stock being sold hereby by selling stockholders or
shares disposed of by bona fide gifts). They have also agreed to waive their
registration rights with respect to our common stock during the Lock-up Period.

Similarly, we have agreed that, during the Lock-up Period, we will not,
subject to some exceptions, issue, sell, contract to sell or otherwise dispose
of any shares of our common stock other than the issuance of our common stock
upon the exercise of outstanding options, warrants or convertible securities.

The Representatives have advised us that, pursuant to Regulation M under
the Securities Exchange Act of 1934, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids which may have the
effect of stabilizing or maintaining the market price of the common stock at a
level about that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of our common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of our
common stock. A "syndicate covering transaction" is the bid for or the purchase
of our common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the underwriters to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with this
offering if the common stock originally sold by such underwriter or syndicate
member is purchased by underwriters in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The underwriters have advised us that such transactions may be effected on the

47
<PAGE> 49

Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.

In connection with this offering, certain underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in our common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
such security; if all independent bids are lowered below the passive market
maker's bid, however, its bid must then be lowered when certain purchase limits
are exceeded.

LEGAL MATTERS

The legality of the common stock offered hereby is being passed upon for us
by Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, New York, New York.
Murray L. Skala, a partner of that firm, is one of our directors and holds of
record 92,996 shares (of which 66,872 shares are held in trust for the benefit
of Mr. Friedman's children) and options to purchase 65,450 shares of our common
stock, all of which are currently exercisable. Morgan, Lewis & Bockius LLP, New
York, New York will pass upon certain legal matters for the underwriters in
connection with this offering.

EXPERTS

Our consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus were audited by Pannell Kerr Forster, Certified Public
Accountants, A Professional Corporation, Los Angeles, California, independent
auditors, as stated in their report appearing herein and are included in
reliance upon the report of that firm given upon their authority as experts in
accounting and auditing.

48
<PAGE> 50

WHERE YOU CAN FIND MORE INFORMATION

This prospectus is part of a registration statement we filed with the SEC.
We also file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. Our SEC filings are also available to the public from the SEC's
Website at "http://www.sec.gov."

The SEC allows us, under certain circumstances, to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings we will make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act (File No. 0-28104).

1. Our Annual Report on Form 10-KSB for our fiscal year ended December 31,
1998;

2. Our Quarterly Report on Form 10-Q for our fiscal quarter ended March 31,
1999; and

3. The "Description of Registrant's Securities to be Registered" contained
in our Registration Statement on Form 8-A (File No. 0-28104), filed
March 29, 1996, and the "Description of Securities -- Common Stock"
incorporated therein by reference to our Registration Statement on Form
SB-2 (Reg. No. 333-2048-LA).

You may request a copy of these filings, at no cost, by writing or
telephoning our Chief Financial Officer at the following address:

JAKKS Pacific, Inc.
22761 Pacific Coast Highway
Suite 226
Malibu, California 90265
(310) 456-7799

49
<PAGE> 51

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Financial Statement Schedule: Schedule II -- Valuation and
Qualifying Accounts....................................... F-23
</TABLE>

F-1
<PAGE> 52

INDEPENDENT AUDITORS' REPORT

The Stockholders
JAKKS Pacific, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of JAKKS
Pacific, Inc. and Subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows and
the financial statement schedule listed in the accompanying index on page F-1
for each of the three years in the period ended December 31, 1998. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 and schedule referred
to above present fairly, in all material respects, the financial position of
JAKKS Pacific, Inc. and Subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.

PANNELL KERR FORSTER
Certified Public Accountants
A Professional Corporation

February 22, 1999
except for note 18, for which
the date is March 1, 1999

F-2
<PAGE> 53

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents............................... $ 2,535,925 $12,452,201
Accounts receivable, net of allowance for uncollectible
accounts of $51,153 and $133,986 for 1997 and 1998,
respectively.......................................... 8,735,528 11,926,725
Inventory, net of reserves of $129,695 and $464,133 for
1997 and 1998, respectively........................... 1,948,250 2,918,941
Deferred product development costs...................... 807,603 237,914
Prepaid expenses and other.............................. 632,315 789,691
Advanced royalty payments............................... 252,603 307,542
Due from officers....................................... 15,112 --
----------- -----------
Total current assets............................. 14,927,336 28,633,014
Property and equipment
Office furniture and equipment.......................... 217,786 440,162
Molds and tooling....................................... 3,647,638 5,826,643
Leasehold improvements.................................. 90,432 195,909
----------- -----------
Total............................................ 3,955,856 6,462,714
Less accumulated depreciation and amortization.......... 1,099,207 2,173,708
----------- -----------
Property and equipment, net...................... 2,856,649 4,289,006
Deferred offering and acquisition costs................... 626,713 408,151
Intangibles and deposits, net............................. 318,511 489,936
Investment in joint venture............................... -- 1,044,708
Goodwill, net............................................. 10,695,488 10,322,896
Trademarks, net........................................... 14,180,118 13,548,054
----------- -----------
Total assets..................................... $43,604,815 $58,735,765
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable........................................ $ 4,266,456 $ 3,705,116
Accrued expenses........................................ 2,467,246 4,371,711
Reserve for sales returns and allowances................ 1,860,821 5,341,517
Current portion of long-term debt....................... 2,361,076 60,000
Income taxes payable.................................... 603,614 1,418,763
----------- -----------
Total current liabilities........................ 11,559,213 14,897,107
Long-term debt, net of current portion.................... 6,000,000 5,940,000
Deferred income taxes..................................... 86,896 144,705
----------- -----------
Total liabilities................................ 17,646,109 20,981,812
----------- -----------
Commitments and contingencies
Stockholders' equity
Common stock, $.001 par value; 25,000,000 shares
authorized; issued and outstanding 4,942,094 and
6,026,042 shares, respectively........................ 4,942 6,026
Convertible preferred stock, $.001 par value; 5,000
shares authorized; issued and outstanding 3,525 and
1,000, respectively................................... 4 1
Additional paid-in capital.............................. 21,693,061 27,044,536
Retained earnings....................................... 4,402,636 10,777,662
----------- -----------
26,100,643 37,828,225
Unearned compensation from grant of options............. 141,937 74,272
----------- -----------
Total stockholders' equity....................... 25,958,706 37,753,953
----------- -----------
Total liabilities and stockholders' equity....... $43,604,815 $58,735,765
=========== ===========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 54

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................. $12,052,016 $41,944,921 $85,252,563
Cost of sales......................... 7,231,296 25,874,784 52,000,135
----------- ----------- -----------
Gross profit.......................... 4,820,720 16,070,137 33,252,428
Selling, general and administrative
expenses............................ 3,611,471 11,895,260 24,006,497
----------- ----------- -----------
Income from operations................ 1,209,249 4,174,877 9,245,931
Interest, net......................... (133,795) 417,293 422,553
Other (income) expense................ -- 328,139 590,948
----------- ----------- -----------
Income before provision for income
taxes............................... 1,343,044 3,429,445 8,232,430
Provision for income taxes............ 163,275 642,949 1,857,404
----------- ----------- -----------
Net income............................ $ 1,179,769 $ 2,786,496 $ 6,375,026
=========== =========== ===========
Basic earnings per share.............. $ 0.36 $ 0.60 $ 1.12
=========== =========== ===========
Diluted earnings per share............ $ 0.34 $ 0.52 $ 0.89
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 55

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
CONVERTIBLE PAR UNEARNED
COMMON PREFERRED VALUE ADDITIONAL COMPENSATION TOTAL
SHARES SHARES PER STOCK PAID-IN RETAINED FROM GRANT STOCKHOLDERS'
OUTSTANDING OUTSTANDING SHARE AMOUNT CAPITAL EARNINGS OF OPTIONS EQUITY
----------- ----------- ----- ------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995.................... 2,000,000 -- $.001 $2,000 $ 1,624,238 $ 436,371 $(212,905) $ 1,849,704
Issuance of common stock
for cash................ 1,502,000 -- .001 1,502 7,652,761 -- -- 7,654,263
Issuance of common stock
from bridge financing
conversion.............. 469,300 -- .001 469 1,044,310 -- -- 1,044,779
Issuance of common stock
in partial consideration
for purchase of toy
business assets......... 13,649 -- .001 14 (14) -- -- --
Earned compensation from
grant of options........ -- -- -- -- -- -- 17,742 17,742
Net income................ -- -- -- -- -- 1,179,769 -- 1,179,769
--------- ------ ----- ------ ----------- ----------- --------- -----------
Balance, December 31,
1996.................... 3,984,949 -- .001 3,985 10,321,295 1,616,140 (195,163) 11,746,257
Issuance of common stock
for cash................ 690,000 -- .001 690 2,921,063 -- -- 2,921,753
Exercise of options....... 69,125 -- .001 69 132,555 -- -- 132,624
Issuance of common stock
in partial consideration
for purchase of toy
business................ 198,020 -- .001 198 1,499,802 -- -- 1,500,000
Issuance of convertible
preferred stock for
cash.................... -- 3,525 .001 4 6,818,346 -- -- 6,818,350
Earned compensation from
grant of options........ -- -- -- -- -- -- 53,226 53,226
Net income................ -- -- -- -- -- 2,786,496 -- 2,786,496
--------- ------ ----- ------ ----------- ----------- --------- -----------
Balance, December 31,
1997.................... 4,942,094 3,525 .001 4,946 21,693,061 4,402,636 (141,937) 25,958,706
Conversion of preferred
stock................... -- (3,525) .001 (4) 4 -- -- --
Issuance of common stock
from conversion of
preferred stock......... 939,998 -- .001 940 (940) -- -- --
Issuance of 7% convertible
preferred stock for
cash.................... -- 1,000 .001 1 4,731,151 -- -- 4,731,152
Exercise of options....... 143,950 -- .001 144 647,248 -- -- 647,392
Earned compensation from
grant of options........ -- -- -- -- -- -- 41,677 41,677
Cancellation of options,
unearned compensation... -- -- -- -- (25,988) -- 25,988 --
Net income................ -- -- -- -- -- 6,375,026 -- 6,375,026
--------- ------ ----- ------ ----------- ----------- --------- -----------
Balance, December 31,
1998.................... 6,026,042 1,000 $.001 $6,027 $27,044,536 $10,777,662 $ (74,272) $37,753,953
========= ====== ===== ====== =========== =========== ========= ===========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 56

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income........................................... $ 1,179,769 $ 2,786,496 $ 6,375,026
----------- ------------ -----------
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization..................... 338,032 1,605,226 2,986,137
Earned compensation from stock option grants...... 17,742 53,226 41,677
Loss on disposal of property and equipment........ -- 328,139 719,331
Changes in operating assets and liabilities
Accounts receivable............................. (1,844,981) (6,315,058) (3,191,197)
Inventory....................................... (53,977) (1,808,145) (970,691)
Prepaid expenses and other...................... (973,076) (450,545) 357,374
Accounts payable................................ 899,929 2,655,469 (561,340)
Accrued expenses................................ 27,049 2,262,159 1,904,465
Income taxes payable............................ 191,622 331,009 815,149
Reserve for sales returns and allowances........ (285,513) 1,685,621 3,480,696
Deferred income taxes........................... (40,186) 94,427 57,809
----------- ------------ -----------
Total adjustments............................ (1,723,359) 441,528 5,639,410
----------- ------------ -----------
Net cash provided (used) by operating
activities................................. (543,590) 3,228,024 12,014,436
----------- ------------ -----------
Cash flows from investing activities
Deferred offering and acquisition costs.............. (85,300) -- --
Property and equipment............................... (1,058,654) (2,934,935) (3,875,852)
Due from officers.................................... (120,030) 104,918 15,112
Other assets......................................... (49,129) (241,572) (197,928)
Trademarks........................................... -- (14,352,556) (12,252)
Investment in joint venture.......................... -- -- (1,044,708)
Cash paid in excess of cost over toy business assets
acquired (goodwill)............................... -- (7,006,753) --
----------- ------------ -----------
Net cash used by investing activities........ (1,313,113) (24,430,898) (5,115,628)
----------- ------------ -----------
Cash flows from financing activities
Proceeds from sale of common stock................... 7,669,263 2,946,603 --
Proceeds from convertible preferred stock............ -- 6,818,350 4,731,152
Proceeds from debt................................... 1,104,694 13,413,659 --
Repayments of note payable to officer................ (382,816) -- --
Proceeds from stock options exercised................ -- 132,624 647,392
Repayments of debt................................... (260,930) (5,245,665) (2,361,076)
Deferred financing costs............................. -- (682,032) --
----------- ------------ -----------
Net cash provided by financing activities.... 8,130,211 17,383,539 3,017,468
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents... 6,273,508 (3,819,335) 9,916,276
Cash and cash equivalents, beginning of year........... 81,752 6,355,260 2,535,925
----------- ------------ -----------
Cash and cash equivalents, end of year................. $ 6,355,260 $ 2,535,925 12,452,201
=========== ============ ===========
Cash paid during the period for:
Interest............................................. $ 49,638 $ 648,187 $ 647,404
=========== ============ ===========
Income taxes......................................... $ 11,839 $ 217,213 $ 1,042,255
=========== ============ ===========
</TABLE>

See note 16 for additional supplemental information to consolidated
statements of cash flows.

See notes to consolidated financial statements.

F-6
<PAGE> 57

JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998

NOTE 1 -- PRINCIPAL INDUSTRY

JAKKS Pacific, Inc. (the "Company"), a Delaware corporation, is engaged in
the development, production and marketing of toys and children's electronics
products, some of which are based on highly-recognized entertainment properties
and character licenses. The Company commenced operations in July 1995 through
the purchase of substantially all of the assets of a Hong Kong toy company. The
Company is marketing its product lines domestically and internationally.

The Company was incorporated under the laws of the State of Delaware in
January 1995.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include accounts of the Company and
its wholly-owned subsidiaries. In consolidation, all significant inter-company
balances and transactions are eliminated.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid assets, having an original maturity
of less than three months, to be cash equivalents. The Company maintains its
cash in bank deposits which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. The Company believes it
is not exposed to any significant credit risk on cash and cash equivalents.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the dates of the financial
statements, and the reported amounts of revenue and expenses during the
reporting periods. Actual future results could differ from those estimates.

REVENUE RECOGNITION

Revenue is recognized upon the shipment of goods to customers. Provisions
for estimated defective products and markdowns are made at the time of sale.

DEFERRED PRODUCT DEVELOPMENT COSTS

The Company defers certain costs related to the preliminary activities
associated with the manufacture of its products, which the Company has
determined have future economic benefit. These costs are then expensed in the
period in which the initial shipment of the related product is made. Management
periodically reviews and revises, when necessary, its

F-7
<PAGE> 58
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimate of the future benefit of these costs, and expenses them if it is deemed
there no longer is a future benefit.

DEFERRED OFFERING, FINANCING AND ACQUISITION COSTS

During 1997, financing costs were incurred in obtaining a line of credit
facility. The deferred financing costs are being amortized over the term of the
credit facility.

During 1996, costs incurred for a follow-on offering, debenture offering
and certain acquisition costs were deferred. The deferred acquisition costs were
reclassified to investment costs upon completion of the acquisition of Road
Champs, Inc. The deferred offering costs related to the debentures are being
amortized over the term of the debentures, or will be written-off upon
conversion (note 8).

INVENTORY

Inventory is valued at the lower of cost (first-in, first-out) or market.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's cash and cash equivalents, accounts receivable and notes
payable represent financial instruments. The carrying value of these financial
instruments is a reasonable approximation of fair value.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are being depreciated using
the straight-line method over their estimated useful lives as follows:

<TABLE>
<S> <C>
Personal computers................... 5 years
Office equipment..................... 5 years
Furniture and fixtures............... 5 years
Molds and tooling.................... 2 - 4 years
Leasehold improvements............... Shorter of length of lease or 10 years
</TABLE>

ADVERTISING

Production costs of commercials and programming are charged to operations
in the year during which the production is first aired. The costs of other
advertising, promotion and marketing programs are charged to operations in the
year incurred. Advertising expense for the years ended December 31, 1996, 1997
and 1998 was approximately $22,000, $1,304,000 and $3,903,000, respectively.

F-8
<PAGE> 59
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES

The Company does not file a consolidated return with its foreign
subsidiaries. The Company files Federal and state returns and its foreign
subsidiaries file Hong Kong returns. Deferred taxes are provided on a liability
method whereby deferred tax assets are recognized as deductible temporary
differences and operating loss and tax credit carry-forwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.

TRANSLATION OF FOREIGN CURRENCIES

Monetary assets and liabilities denominated in Hong Kong dollars are
translated into United States dollars at the rates of exchange ruling at the
balance sheet date. Transactions during the period are translated at the rates
ruling at the dates of the transactions.

Profits and losses resulting from the above translation policy are
recognized in the consolidated statement of operations.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess purchase price paid over the fair market
value of the assets of acquired toy companies. Goodwill is being amortized over
30 years on a straight-line basis. Accumulated amortization at December 31, 1997
and 1998 totaled $482,263 and $632,519, respectively.

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 and cash flows and analysis of recent sales and
earnings trends. Subjective factors include competitive analysis and the
Company's strategic focus.

Intangible assets other than goodwill consist of product technology rights
and trademarks. Intangible assets are amortized on a straight-line basis, over
five to thirty years, the estimated economic lives of the related assets.
Accumulated amortization as of December 31, 1997 and 1998 was $192,606 and
$1,177,306, respectively.

EARNINGS PER SHARE (EPS)

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." This statement establishes simplified standards for
computing and presenting earnings per share (EPS). It requires dual presentation
of basic and diluted

F-9
<PAGE> 60
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EARNINGS PER SHARE (EPS) (CONTINUED)
EPS on the face of the income statement for entities with complex capital
structures and disclosures of the calculation of each EPS amount.

<TABLE>
<CAPTION>
1996
------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE
---------- --------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders.... $1,179,769 3,284,432 $ 0.36
=========
Effect of dilutive securities
Options and warrants....................... -- 219,335
---------- ---------
Diluted EPS
Income available to common stockholders
plus assumed exercises................... $1,179,769 3,503,767 $ 0.34
========== ========= =========
</TABLE>

<TABLE>
<CAPTION>
1997
------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE
---------- --------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders.... $2,786,496 4,621,369 $ 0.60
=========
Effect of dilutive securities
Options and warrants....................... -- 187,761
9% convertible debentures.................. 363,286 1,023,411
4% convertible preferred stock............. -- 175,904
---------- ---------
Diluted EPS
Income available to common stockholders
plus assumed exercises and conversions... $3,149,782 6,008,445 $ 0.52
========== ========= =========
</TABLE>

F-10
<PAGE> 61
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EARNINGS PER SHARE (EPS) (CONTINUED)

<TABLE>
<CAPTION>
1998
------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER-SHARE
---------- --------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders.... $6,375,026 5,692,601 $ 1.12
=========
Effect of dilutive securities
Options and warrants....................... -- 217,898
9% convertible debentures.................. 372,732 1,043,479
4% convertible preferred stock............. -- 227,252
7% convertible preferred stock............. -- 420,528
---------- ---------
Diluted EPS
Income available to common stockholders
plus assumed exercises and conversions... $6,747,758 7,601,758 $ 0.89
========== ========= =========
</TABLE>

NOTE 3 -- ACQUISITIONS AND JOINT VENTURE

In February 1997, the Company acquired all of the stock of Road Champs,
Inc. (RCI) and all of the operating assets of an affiliated company for
$11,723,924. Consideration paid at closing was $4,719,413 in cash plus the
issuance of $1,500,000 (198,020 shares) of the Company's common stock. The
balance of the adjusted purchase price of $3,079,026 was paid in three equal
installments bearing interest at a rate of 7.0% per annum. As of December 31,
1998, all such payments were made in full. In addition, the payment for
inventory of $2,188,778, without interest, was made in 1997. Professional fees
totaling $236,707 were incurred as part of the acquisition costs. Outstanding
balances were secured by all acquired shares and assets, however, they were
subordinated to the convertible debentures due December 31, 2003 (note 8).

The assets acquired and liabilities assumed from RCI were as follows:

<TABLE>
<S> <C>
Inventory, net of reserve of $200,000............. $ 1,956,358
Prepaid expenses.................................. 226,881
Property and equipment............................ 694,788
Deposits.......................................... 105,461
Trademarks........................................ 1,000,000
Goodwill.......................................... 8,506,753
Liabilities assumed............................... (766,317)
-----------
Net assets acquired $11,723,924
===========
</TABLE>

F-11
<PAGE> 62
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 3 -- ACQUISITIONS AND JOINT VENTURE (CONTINUED)
In October 1997, the Company acquired the right, title and interest in and
to the Remco and Child Guidance (R&CG) trademarks, and all registrations and
applications for registration thereof, throughout the world. Total costs of the
trademarks included:

<TABLE>
<S> <C>
Cash.............................................. $10,600,000
Promissory note................................... 1,200,000
Liabilities assumed............................... 1,350,000
Professional service fees......................... 202,556
-----------
Total acquisition costs $13,352,556
===========
</TABLE>

The total purchase price paid to the seller consisted of cash and a
promissory note totaling $11,800,000. The liabilities assumed included a reserve
for returns and allowances of $750,000 and a reserve of $600,000 that represents
the Company's contributions to the seller's settlement with its Hong Kong
representative agent for early termination of its service contract due to sale
of the trademarks. Costs incurred in professional service fees of $202,556 are
attributed to executing the acquisition of the trademarks. The Company also
entered into a firm commitment, manufacturing and supply agreement with seller
(note 12).

In June 1998, the Company formed a joint venture with a company that
develops, publishes and distributes interactive entertainment software for the
leading hardware game platforms in the home video game market. The joint venture
has entered into a license agreement under which it acquired the exclusive
worldwide right to publish video games on all hardware platforms. As of December
31, 1998, the Company has made initial contributions to the joint venture of
$1,044,708 (note 12).

NOTE 4 -- CONCENTRATION OF CREDIT RISK

Financial instruments that subject the Company to concentration of credit
risk are cash equivalents and trade receivables. Cash equivalents consist
principally of short-term money market funds. These instruments are short-term
in nature and bear minimal risk. To date, the Company has not experienced losses
on these instruments.

The Company performs ongoing credit evaluations of its customers' financial
condition, but does not require collateral to support customer receivables. Most
goods are sold on irrevocable letter of credit basis.

Included in the Company's consolidated balance sheets at December 31, 1997
and 1998 are its operating net assets, most of which are located in facilities
in Hong Kong and China and which totaled $8,948,131 and $8,627,240 for 1997 and
1998, respectively.

NOTE 5 -- DUE FROM OFFICERS

Due from officers represented a balance of $15,112 at December 31, 1997 due
from a Company officer. The $15,112, due on demand, was non-interest bearing and
was repaid in 1998.

F-12
<PAGE> 63
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 6 -- ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Bonuses............................... $ 254,737 $ 841,000
Trademarks acquisition reserve........ 600,000 177,245
Interest expense...................... 37,607 --
Royalties and sales commissions....... 1,130,512 2,681,973
Hong Kong subsidiaries accruals....... 384,747 529,722
Other................................. 59,643 141,771
---------- ----------
$2,467,246 $4,371,711
========== ==========
</TABLE>

NOTE 7 -- RELATED PARTY TRANSACTIONS

A director of the Company is a partner in the law firm that acts as counsel
to the Company. The Company paid legal fees and expenses to the law firm in the
amount of approximately $270,000 in 1996, $151,000 in 1997 and $510,000 in 1998.
Also see note 5 for other related party transactions.

F-13
<PAGE> 64
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 8 -- LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Convertible debentures, bearing interest on the
principal amounts outstanding at 9% per annum with
the first monthly installment payable on February 1,
1997. If not sooner redeemed or converted into
common stock, the debenture shall mature on December
31, 2003. Commencing on December 31, 1999, mandatory
monthly principal redemption installments are to be
made in the amount of $10 per $1,000 of the then
remaining principal amount of the debenture. Such
debentures are convertible into 1,043,479 shares of
the Company's common stock at $5.75 per share. The
debentures are secured by all outstanding shares of
the Company's wholly-owned subsidiaries and
substantially all operating assets of the Company
(note 2)............................................ $6,000,000 $6,000,000
Note payable, due in five quarterly principal
installments of $240,000 starting December 31, 1997,
with interest at 10% per annum. The note is secured
by the Remco and Child Guidance trademarks.......... 1,200,000 --
Note payable, due in three principal payments with the
final installment due February 6, 1998, with
interest at 7% per annum. The note is secured by the
RCI assets.......................................... 1,046,376 --
Line of credit facility (note 12)..................... 114,700 --
---------- ----------
8,361,076 6,000,000
Less current portion of long-term debt................ 2,361,076 60,000
---------- ----------
Long-term debt, net of current portion................ $6,000,000 $5,940,000
========== ==========
</TABLE>

NOTE 9 -- INCOME TAXES

The provision differs from the expense that would result from applying
Federal statutory rates to income before taxes because of the inclusion of a
provision for state income taxes and the income of the Company's foreign
subsidiaries is taxed at a rate of 16.5% applicable in Hong Kong. In addition,
the provision includes deferred income taxes resulting from adjustments in the
amount of temporary differences. Temporary differences arise primarily from
differences in timing in the deduction of state income taxes and the use of the
straight-line method of depreciation for financial reporting purposes and
accelerated methods of depreciation for tax purposes.

F-14
<PAGE> 65
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 9 -- INCOME TAXES (CONTINUED)
The Company does not file a consolidated return with its foreign
subsidiaries. The Company files Federal and state returns and its foreign
subsidiaries file Hong Kong returns. Income taxes reflected in the accompanying
consolidated statements of operations are comprised of the following:

<TABLE>
<CAPTION>
1996 1997 1998
--------- -------- ----------
<S> <C> <C> <C>
Federal.................... $ -- $ -- $ 715,000
State and local............ 1,350 26,000 210,000
Hong Kong.................. 277,994 522,522 874,595
--------- -------- ----------
279,344 548,522 1,799,595
Deferred................... (116,069) 94,427 57,809
--------- -------- ----------
$ 163,275 $642,949 $1,857,404
========= ======== ==========
</TABLE>

As of December 31, 1998, the Company has utilized all net operating loss
carry-forwards.

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets resulting from deductible
temporary differences from loss
carry-forwards, noncurrent................... $ 258,239 $ 493,134
Deferred tax liabilities resulting from taxable
temporary differences, noncurrent............ (345,135) (637,839)
--------- ---------
$ (86,896) $(144,705)
========= =========
</TABLE>

The Company's management concluded that a deferred tax asset valuation
allowance as of December 31, 1997 and 1998 was not necessary.

A reconciliation of the statutory United States Federal income tax rate to
the Company's effective income tax rate is as follows:

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate......................... 35% 35% 35%
State and local income taxes, net of Federal
income tax effect............................... 1 1 1
Effect of temporary differences and Hong Kong's
lower tax rate.................................. -- -- (22)
Effect of net operating loss carry-forwards....... (40) (35) (11)
Income taxes on foreign earnings at rates other
than the United States Statutory rate not
subject to United States income taxes........... 16 18 19
--- --- ---
12% 19% 22%
=== === ===
</TABLE>

F-15
<PAGE> 66
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 9 -- INCOME TAXES (CONTINUED)

The components of income before provision for income taxes are as follows:

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Domestic................. $ (360,040) $ 16,216 $3,681,456
Foreign.................. 1,703,084 3,413,229 4,550,974
---------- ---------- ----------
$1,343,044 $3,429,445 $8,232,430
========== ========== ==========
</TABLE>

NOTE 10 -- LEASES

The Company leases office and showroom facilities and certain equipment
under operating leases. The following is a schedule of minimum annual lease
payments. Rent expense for the years ended December 31, 1996, 1997 and 1998
totaled $182,690, $582,766 and $550,360, respectively.

NOTE 11 -- COMMON STOCK AND PREFERRED STOCK

The Company has 25,005,000 authorized shares of stock consisting of
25,000,000 shares of $.001 par value common stock and 5,000 shares of $.001 par
value preferred stock.

On April 1, 1998, the Company sold 1,000 shares of its Series A 7%
cumulative convertible preferred stock to two investors for $4,731,152, net of
issuance costs. The holders of the shares have the right, at their option, to
convert such shares into common stock of the Company at any time. The price at
which shares of common stock shall be delivered upon conversion shall initially
be $8.95 per share of common stock. The conversion price may be adjusted in
certain instances. Preferred stockholders are entitled to receive cumulative
cash dividends at an annual rate of $350 per share payable as and when declared
by the Company's Board of Directors.

During 1998, 143,950 shares of the Company's common stock were issued on
exercise of options for a total of $647,392.

During 1997, the Company issued 690,000 shares of its common stock in a
public offering and 198,020 shares as partial consideration for the RCI
acquisition (note 3).

During 1997, in a private placement, the Company issued 3,525 shares of its
4% redeemable convertible preferred stock at a purchase price of $2,000 per
share. In March 1998, all of the 3,525 shares of such issue were converted into
an aggregate of

F-16
<PAGE> 67
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 11 -- COMMON STOCK AND PREFERRED STOCK (CONTINUED)
939,998 shares of the Company's common stock based on a conversion price of
$7.50 per share.

NOTE 12 -- COMMITMENTS

The Company has entered into various license agreements whereby the Company
may use certain characters and properties in conjunction with its products. Such
license agreements call for royalties to be paid at 1% to 10% of net sales with
minimum guarantees and advance payments. Additionally, under one such license,
the Company has committed to spend 12.5% of related net sales, not to exceed
$1,000,000, on advertising per year.

Future annual minimum royalty guarantees as of December 31, 1998 are as
follows:

<TABLE>
<S> <C>
1999.............................. $ 1,752,833
2000.............................. 1,653,583
2001.............................. 1,551,750
2002.............................. 1,475,000
2003.............................. 1,380,000
Thereafter........................ 9,387,500
-----------
$17,200,666
===========
</TABLE>

The Company entered into a joint venture agreement (note 3) creating a new
limited liability company (LLC) in which the Company holds a 50% ownership
interest. On June 10, 1998, the LLC entered into a license agreement expiring
December 31, 2009, with an option for a five year automatic extension if the LLC
pays the licensor $27,000,000 in royalties during the initial ten year period of
the agreement. The license agreement includes guaranteed minimum royalty
payments of $18,000,000 payable over the ten year initial term and $7,500,000
payable over the five year renewal period, if applicable. The Company is
responsible for $7,500,000 of the $18,000,000 guaranteed royalty payments. The
guarantee payments include a $3,000,000 advance, paid within 15 days after the
agreements were executed, and ten minimum guaranteed installments of $1,500,000,
due each January 30, starting in 2000 and ending 2009. The Company was
responsible for funding $1,000,000 of the initial advance and is responsible for
funding $500,000 of the first four and $750,000 of the next six of ten yearly
installments. All unpaid guaranteed amounts for which the Company is responsible
as of December 31, 1998 are included in the totals of the "future annual minimum
royalty guarantees" table noted above. The $7,500,000 renewal guaranteed will be
payable in five yearly installments, of which the Company will be responsible
for funding 50% of each yearly payment.

The Company entered into a firm price commitment manufacturing and supply
agreement in connection with the acquisition of the R&CG trademarks purchased in
1997 (note 3). The agreement was entered into with the seller of the trademarks
to obtain from the seller tools and other manufacturing resources of the seller
for the manufacture of products, upon request by the Company. The manufacturing
and supply agreement has

F-17
<PAGE> 68
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 12 -- COMMITMENTS (CONTINUED)

created a firm commitment by the Company for a minimum of $1,400,000. A minimum
payment of $110,000 on the agreement was due on December 31, 1997, with three
additional payments of $110,000 and six payments of $160,000 to follow
thereafter, through March 31, 2000, which is also the date on which the
agreement terminates.

The Company and its subsidiaries are acting as joint and several guarantors
of a $5,000,000 conditional, secured, revolving, short-term trade facility
available to the Company's Hong Kong wholly-owned subsidiaries. Proceeds on the
credit facility are to finance working capital needs and operations in the
normal course of business. At December 31, 1997 and 1998, there were unused
amounts available on the line of credit of $4,885,300 and $5,000,000 and
outstanding balances of $114,700 and $0, respectively. Outstanding balances
accrue interest at rates equal to the bank's base rate of interest plus 1% per
annum for advances of open accounts receivable, and the bank's base rate of
interest plus 1/2% for advances received under negotiation of export letters of
credit. At December 31, 1998, the credit facility carried interest at rates of
9.5% and 9%, respectively. Outstanding balances are collateralized by all assets
of the borrower and accounts receivable and inventory of the guarantors. The
credit facility expires May 31, 1999, unless terminated sooner (note 8).

NOTE 13 -- STOCK OPTION PLAN

Under its Third Amended and Restated 1995 Stock Option Plan (the Plan), the
Company has reserved 1,250,000 shares of its common stock for issuance upon
exercise of options granted under the Plan. In 1998, stockholders approved an
increase of 500,000 shares in the number of shares available for grant. Under
the Plan, employees (including officers), non-employee directors and independent
consultants may be granted options to purchase shares of common stock. Prior to
the adoption of the Plan in 1995, options for 276,500 shares were granted at an
exercise price of $2.00 per share. The Company recorded deferred compensation
costs and a related increase in paid-in capital of $212,905 for the difference
between the grant price and the deemed fair market value of the common stock of
$2.77 per share at the date of grant. Such compensation costs are recognized on
a straight-line basis over the vesting period of the options, which is 25% per
year commencing twelve months after the grant date of such options. In 1996,
1997 and 1998, the fair value of each employee option grant was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions used: risk-free rate of interest of 6%; dividend yield of 0%; and
expected lives of five years.

As of December 31, 1998, 308,000 shares were available for future grant.
Additional shares may become available to the extent that options presently
outstanding under the Plan terminate or expire unexercised.

F-18
<PAGE> 69
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 13 -- STOCK OPTION PLAN (CONTINUED)
Stock option activity pursuant to the Plan is summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, December 31, 1995............ 10,850 $ 4.50
Granted................................. 114,625 6.70
Exercised............................... -- --
Canceled................................ -- --
------- -------
Outstanding, December 31, 1996............ 125,475 6.51
Granted................................. 405,025 9.92
Exercised............................... -- --
Canceled................................ -- --
------- -------
Outstanding, December 31, 1997............ 530,500 9.12
Granted................................. 484,500 8.38
Exercised............................... (31,800) 8.18
Canceled................................ (73,000) 8.77
------- -------
Outstanding, December 31, 1998............ 910,200 $ 8.79
======= =======
</TABLE>

Stock option activity outside of the Plan is summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, December 31, 1995............ 276,500 $ 2.00
Granted................................. 75,000 7.54
Exercised............................... -- --
Canceled................................ -- --
-------- -------
Outstanding, December 31, 1996............ 351,500 3.18
Granted................................. 60,000 6.88
Exercised............................... (69,125) 2.00
Canceled................................ -- --
-------- -------
Outstanding, December 31, 1997............ 342,375 4.07
Granted................................. -- --
Exercised............................... (100,900) 3.93
Canceled................................ (33,750) 2.00
-------- -------
Outstanding, December 31, 1998............ 207,725 $ 4.47
======== =======
</TABLE>

The weighted average fair value of options granted to employees in 1996,
1997 and 1998 was $2.30, $5.01 and $6.15 per share, respectively.

F-19
<PAGE> 70
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 13 -- STOCK OPTION PLAN (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------- --------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
NUMBER AVERAGE EXERCISE NUMBER EXERCISE
OPTION PRICE RANGE OF SHARES LIFE PRICE OF SHARES PRICE
------------------ --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$2.00-$10.725................... 1,117,925 5.7 years $7.99 434,400 $7.53
</TABLE>

In addition, as of December 31, 1998, 635,000 shares were reserved for
issuance upon exercise of warrants granted in connection with the Company's
initial public offering, follow-on public offering, private placement of
convertible debentures and certain license agreements, at exercise prices
ranging from $6.75 to $10.00 per share.

Had the compensation cost for the Company's Plan been determined on a basis
consistent with SFAS No. 123, the Company's net income and earnings per share
(EPS) for 1996, 1997 and 1998 would approximate the pro forma amounts below,
which are not indicative of future amounts:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1997 1998
----------------------- ----------------------- -----------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SFAS No. 123 charge,
net of tax......... $ -- $ 18,172 $ -- $ 132,895 $ -- $ 551,541
Net income........... 1,179,769 1,161,597 2,786,496 2,653,601 6,375,026 5,823,485
Basic EPS............ 0.36 0.35 0.60 0.57 1.12 1.02
Diluted EPS.......... $ 0.34 $ 0.33 $ 0.52 $ 0.50 $ 0.89 $ 0.82
</TABLE>

F-20
<PAGE> 71
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 14 -- PROFIT SHARING PLAN

Effective January 1, 1997, the Company adopted a 401(k) profit sharing plan
and trust (Plan). The Plan is for the exclusive benefit of eligible employees
and beneficiaries. Under the Plan, employees may choose to reduce their
compensation and have those amounts contributed to the Plan on their behalf.
Contributions made to the Plan will be held and invested by the Plan's trustee.
The Company will act as the Plan's administrator. The Plan year begins on
January 1st and ends on December 31st. Employees then employed were eligible to
participate in the Plan as of the effective date. Otherwise, employees may be
eligible to participate in the Plan after they have completed one year of
service. The Company will make matching contributions equal to 50% of the amount
of salary reduction deferred. However, in applying the matching percent, only
salary reductions up to 10% of compensation will be considered. The Company may
also make discretionary contributions to the Plan each year. Participants may
elect to defer up to 15% of their compensation each year. However, deferrals in
any taxable year may not exceed a dollar limit which is set by law. The limit
for 1998 was $10,000. Vesting in the Plan is based on years of service, as
follows:

<TABLE>
<CAPTION>
YEARS OF SERVICE CUMULATIVE PERCENT VESTED
---------------- -------------------------
<S> <C>
1 20%
2 40
3 60
4 80
5 100
</TABLE>

Participants are immediately 100% vested in their salary reduction amounts
contributed to the Plan.

The Company has the right to amend and, terminate the Plan at any time.
Upon termination, all amounts credited to participants accounts will become 100%
vested.

As of December 31, 1998, the Plan has not been "qualified" under the
provisions of the Internal Revenue Code, and for the year then ended, the
Company contributed $65,217 in matching contributions to the Plan.

NOTE 15 -- MAJOR CUSTOMERS AND INTERNATIONAL SALES

Net sales to major customers were as follows:

<TABLE>
<CAPTION>
1996 1997 1998
------------------------ ------------------------- -------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
$3,398,000.. 28.2% $14,689,000 35.0% $23,604,000 27.7%
1,679,000.. 13.9 3,422,000 8.2 11,103,000 13.0
1,008,000.. 8.4 3,199,000 7.6 10,944,000 12.8
847,000... 7.0 2,658,000 6.3 9,951,000 11.7
509,000... 4.2 1,925,000 4.6 3,717,000 4.4
---------- ---- ----------- ---- ----------- ----
$7,441,000.. 61.7% $25,893,000 61.7% $59,319,000 69.6%
========== ==== =========== ==== =========== ====
</TABLE>

F-21
<PAGE> 72
JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 15 -- MAJOR CUSTOMERS AND INTERNATIONAL SALES (CONTINUED)
Net sales to international customers totaled approximately $1,043,000,
$3,733,000 and $6,309,000 in 1996, 1997 and 1998, respectively.

NOTE 16 -- SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS

In March 1998, the 3,525 shares of 4% redeemable convertible preferred
stock with a total stockholders' equity value of $6,818,350 were converted into
an aggregate of 939,998 shares of the Company's common stock.

In 1997, 198,020 shares of common stock valued at $1,500,000 were issued in
connection with the acquisition of RCI (note 3).

In 1996, 469,300 shares of common stock were issued pursuant to the
conversion of bridge financing promissory notes which provided net proceeds of
$1,044,779.

NOTE 17 -- RECENT ACCOUNTING PRONOUNCEMENTS

In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. This statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This new standard requires
that an enterprise classify items of other comprehensive income by their nature
in a financial statement; display the accumulated balances of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. This
statement is effective for fiscal years beginning after December 15, 1997. To
date, the Company has not had any transactions that are required to be reported
in other comprehensive income.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement requires public business
enterprises to report financial and descriptive information about reportable
segments. The statement also establishes standards for related disclosures about
products and services, geographic areas and major customers. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
operates in one reportable segment: the development, production and marketing of
toy and related products.

NOTE 18 -- SUBSEQUENT EVENT

On March 1, 1999, the holders of the Company's 9% convertible debentures
have elected to convert an aggregate of $3,000,000 principal amount of the
debentures into 521,740 shares of the Company's common stock on May 25, 1999.

F-22
<PAGE> 73

JAKKS PACIFIC, INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

Allowances are deducted from the assets to which they apply, except for
sales returns and allowances.

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END
PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1996:
Allowance for:
Uncollectible
accounts.......... $ -- $ -- $ -- $ -- $ --
Reserve for potential
product
obsolescence...... -- -- -- -- --
Reserve for sales
returns and
allowances........ 460,513 253,568 -- 539,081 175,000
---------- ---------- ---------- ---------- ----------
$ 460,513 $ 253,568 $ -- $ 539,081 $ 175,000
========== ========== ========== ========== ==========
Year ended December 31,
1997:
Allowance for:
Uncollectible
accounts.......... $ -- $ -- $ 51,153 $ -- $ 51,153
Reserve for potential
product
obsolescence...... -- -- 200,000 70,305 129,695
Reserve for sales
returns and
allowances........ 175,000 3,660,775 1,050,000 3,024,954 1,860,821
---------- ---------- ---------- ---------- ----------
$ 175,000 $3,660,775 $1,301,153 $3,095,259 $2,041,669
========== ========== ========== ========== ==========
Year ended December 31,
1998:
Allowance for:
Uncollectible
accounts.......... $ 51,153 $ 82,833 $ -- $ -- $ 133,986
Reserve for potential
product
obsolescence...... 129,695 334,438 -- -- 464,133
Reserve for sales
returns and
allowances........ 1,860,821 6,525,867 -- 3,045,171 5,341,517
---------- ---------- ---------- ---------- ----------
$2,041,669 $6,943,138 $ -- $3,045,171 $5,939,636
========== ========== ========== ========== ==========
</TABLE>

F-23
<PAGE> 74

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all costs and expenses in connection with
the issuance and distribution of the securities being registered, other than
underwriting discounts. All such expenses will be paid by the Company; none will
be paid by the selling stockholders.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 17,468
NASD filing fee............................................. 5,343
*Blue sky fees and expenses (including legal fees).......... 500
Nasdaq National Market listing fee.......................... 17,500
*Printing and engraving expenses............................ 125,000
*Legal fees and expenses.................................... 200,000
*Accounting fees and expenses............................... 50,000
*Miscellaneous.............................................. 134,189
--------
*TOTAL............................................ $550,000
========
</TABLE>

- -------------------------
* Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant's Certificate of Incorporation provides that the personal
liability of the directors of the Registrant shall be limited to the fullest
extent permitted by the provisions of Section 102(b)(7) of the General
Corporation Law of the State of Delaware ("DGCL"). Section 102(b)(7) of the DGCL
generally provides that no director shall be liable personally to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that the Certificate of Incorporation does not eliminate the
liability of a director for (1) any breach of the director's duty of loyalty to
the Registrant or its stockholders; (2) acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law; (3) acts or
omissions in respect of certain unlawful dividend payments or stock redemptions
or repurchases; or (4) any transaction from which such director derives an
improper personal benefit. The effect of this provision is to eliminate the
rights of the Registrant and its stockholders to recover monetary damages
against a director for breach of her or his fiduciary duty of care as a director
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (1) through (4) above. The
limitations summarized above, however, do not affect the ability of the
Registrant or its stockholders to seek nonmonetary remedies, such as an
injunction or rescission, against a director for breach of her or his fiduciary
duty.

In addition, the Certificate of Incorporation provides that the Registrant
shall, to the fullest extent permitted by Section 145 of the DGCL, indemnify all
persons whom it may indemnify pursuant to Section 145 of the DGCL. In general,
Section 145 of the DGCL permits the Registrant to indemnify a director, officer,
employee or agent of the Registrant or, when so serving at the Registrant's
request, another company who was or is a party or is threatened to be made a
party to any proceeding because of his or her position, if he or she acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Registrant and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.

II-1
<PAGE> 75

The Registrant maintains a directors' and officers' liability insurance
policy covering certain liabilities that may be incurred by any director or
officer in connection with the performance of his or her duties and certain
liabilities that may be incurred by the Registrant, including the
indemnification payable to any director or officer. This policy provides for
$1.0 million in maximum aggregate coverage, including defense costs. The entire
premium for such insurance is paid by the Registrant.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
informed that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement(1)
4.1 Restated Certificate of Incorporation of the Registrant(2)
4.1.1 Certificate of Designation and Preferences of Series A
Cumulative Convertible Preferred Stock of the Registrant(3)
4.1.2 Amendment to Restated Certificate of Incorporation of the
Registrant(4)
4.2 By-laws of the Registrant(2)
4.2.1 Amendment to By-laws of the Registrant(5)
5.1 Opinion of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass
LLP(1)
23.1 Consent of Pannell Kerr Forster, Certified Public
Accountants, A Professional Corporation(1)
23.2 Consent of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass
LLP (included in Exhibit 5.1)(1)
24.1 Power of Attorney (4)
27.1 Financial Data Schedule(4)
</TABLE>

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

(1) Filed herewith.

(2) Filed previously as an exhibit to the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-2048-LA), dated May 1, 1996, and incorporated herein
by reference.

(3) Filed previously as an exhibit to the Registrant's Current Report on Form
8-K, filed August 7, 1998, and incorporated herein by reference.

(4) Previously filed.

(5) Filed previously as an exhibit to the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-22583), effective May 1, 1997, and incorporated
herein by reference.

ITEM 17. UNDERTAKINGS

1. The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where

II-2
<PAGE> 76

applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

2. The Registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

II-3
<PAGE> 77

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Malibu, State of California, on April 26, 1999.

JAKKS PACIFIC, INC.

By: /s/ JACK FRIEDMAN*

-----------------------------------
Jack Friedman, Chairman

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ JACK FRIEDMAN* Chief Executive Officer April 26, 1999
- --------------------------------------------- and Chairman (Principal
Jack Friedman Executive Officer)

/s/ STEPHEN G. BERMAN* Director April 26, 1999
- ---------------------------------------------
Stephen G. Berman

/s/ JOEL M. BENNETT Chief Financial Officer April 26, 1999
- --------------------------------------------- (Principal Financial
Joel M. Bennett Officer and Principal
Accounting Officer)

/s/ ROBERT E. GLICK* Director April 26, 1999
- ---------------------------------------------
Robert E. Glick

/s/ MICHAEL G. MILLER* Director April 26, 1999
- ---------------------------------------------
Michael G. Miller

/s/ MURRAY L. SKALA* Director April 26, 1999
- ---------------------------------------------
Murray L. Skala

*By: /s/ JOEL M. BENNETT
---------------------------------------
Joel M. Bennett, Attorney-in-Fact
</TABLE>

II-4
<PAGE> 78

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement(1)
4.1 Restated Certificate of Incorporation of the Registrant(2)
4.1.1 Certificate of Designation and Preferences of Series A
Cumulative Convertible Preferred Stock of the Registrant(3)
4.1.2 Amendment to Restated Certificate of Incorporation of the
Registrant(4)
4.2 By-laws of the Registrant(2)
4.2.1 Amendment to By-laws of the Registrant(5)
5.1 Opinion of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass
LLP(1)
23.1 Consent of Pannell Kerr Forster, Certified Public
Accountants, A Professional Corporation(1)
23.2 Consent of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass
LLP (included in Exhibit 5.1)(1)
24.1 Power of Attorney (4)
27.1 Financial Data Schedule(4)
</TABLE>

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

(1) Filed herewith.

(2) Filed previously as an exhibit to the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-2048-LA), dated May 1, 1996, and incorporated herein
by reference.

(3) Filed previously as an exhibit to the Registrant's Current Report on Form
8-K, filed August 7, 1998, and incorporated herein by reference.

(4) Previously filed.

(5) Filed previously as an exhibit to the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-22583), effective May 1, 1997, and incorporated
herein by reference.

<PAGE> 1
EXHIBIT 1.1

MLB-NY DRAFT
4/23/99

JAKKS PACIFIC, INC.

2,350,000 Shares(1)
Common Stock
($.001 par value)

UNDERWRITING AGREEMENT

New York, New York
April ___, 1999

Advest, Inc.
Morgan Keegan & Company, Inc.
Southwest Securities, Inc.
As Representatives of the several Underwriters
c/o Advest, Inc.
One Rockefeller Plaza, 20th Floor
New York, New York 10020

Ladies and Gentlemen:

JAKKS Pacific, Inc., a Delaware corporation (the "Company"), and the
persons named in Schedule I hereto (the "Selling Stockholders") propose to sell
to the several underwriters named in Schedule II hereto (the "Underwriters"),
for whom you (the "Representatives") are acting as representatives, a total of
2,350,000 shares of Common Stock, $.001 par value ("Common Stock"), of the
Company (said shares to be sold by the Company and the Selling Stockholders
collectively are hereinafter called the "Underwritten Securities"). Of the
2,350,000 shares of Underwritten Securities, 2,100,000 are being sold by the
Company and 250,000 by the Selling Stockholders. The Company and the Selling
Stockholders also propose to grant to the Underwriters an option to purchase up
to 352,500 additional shares of Common Stock to cover over-allotments (the
"Option Securities"; the Option Securities, together with the Underwritten
Securities, are hereinafter called the "Securities"). Of the 352,500 Option
Securities, 307,500 are being offered by the Company and 45,000 by the Selling

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

(1) Plus an option to purchase from the Company up to 352,500 additional
shares of Common Stock to cover over-allotments.

<PAGE> 2

Stockholders; in the event that the Underwriters do not purchase all of the
Option Securities, the Company and the Selling Stockholders will sell their
respective pro rata portions of the Option Securities actually purchased. To the
extent there are no additional Underwriters listed on Schedule II other than
you, the terms Representatives and Underwriters, shall mean either the singular
or plural as the context requires. The use of the neuter in this Agreement shall
include the feminine and masculine wherever appropriate. Certain terms used
herein are defined in Section 18 hereof.

1. Representations and Warranties.

(a) The Company. The Company represents and warrants to, and agrees
with, each Underwriter as set forth below in this Section 1:

(i) Registration Statement; Amendments; Final Prospectus. The
Company meets the requirements for the use of Form S-3 under the Act and has
prepared and filed with the Commission a registration statement (Registration
Number 333-74717) on Form S-3, including a related preliminary prospectus, for
the registration under the Act of the offering and sale of the Securities. The
Company may have filed one or more amendments thereto, including a related
preliminary prospectus, each of which has previously been furnished to you. The
Company will next file with the Commission either (1) prior to the Effective
Date of such registration statement, a further amendment to such registration
statement (including the form of final prospectus) or (2) after the Effective
Date of such registration statement, a final prospectus in accordance with
Rules 430A and 424(b). In the case of clause (2), the Company has included in
such registration statement, as amended at the Effective Date, all information
(other than Rule 430A Information) required by the Act and the rules thereunder
to be included in such registration statement and the Prospectus. As filed, such
amendment and form of final prospectus, or such final prospectus, shall contain
all Rule 430A Information, together with all other such required information,
and, except to the extent the Representatives shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to you
prior to the Execution Time or, to the extent not completed at the Execution
Time, shall contain only such specific additional information and other changes
(beyond that contained in the latest Preliminary Prospectus) as the Company has
advised you, prior to the Execution Time, will be included or made therein.

(ii) Compliance. On the Effective Date, the Registration
Statement did or will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date (as defined herein) and on
any date on which Option Securities are purchased, if such date is not the
Closing Date (a "settlement date"), the Prospectus (and any supplements thereto)
will, comply in all material respects with the applicable requirements of the
Act and the Exchange Act and the respective rules thereunder; on the Effective
Date and at the Execution Time, the Registration Statement did not or will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading; and, on the Effective Date, the Prospectus, if not filed

<PAGE> 3

pursuant to Rule 424(b), did or will not, and on the date of any filing pursuant
to Rule 424(b) and on the Closing Date and any settlement date, the Prospectus
(together with any supplement thereto) will not, include any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representations or warranties as to the information contained in or omitted from
the Registration Statement or the Prospectus (or any supplement thereto) in
reliance upon and in conformity with information furnished herein or in writing
to the Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion in the Registration Statement or the Prospectus (or
any supplement thereto).

(iii) Subsidiaries. The subsidiaries of the Company (the
"Subsidiaries") listed in Exhibit 21 to the Company's Annual Report on Form
10-KSB most recently filed with the Commission are the only material
subsidiaries of the Company.

(iv) Due Organization. Each of the Company and the
Subsidiaries has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction in which it is organized with
full corporate power and authority to own its properties and conduct its
business as described in the Prospectus, and is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.

(v) Capitalization of Subsidiaries. All the outstanding shares
of capital stock of each Subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable and, except as otherwise set forth
in the Prospectus, all outstanding shares of capital stock of the Subsidiaries
are owned by the Company either directly or through wholly owned Subsidiaries or
through a designated nominee of the Company, free and clear of any security
interests, claims, liens or encumbrances, except that all of the outstanding
shares of each of the Subsidiaries have been pledged in connection with the
issuance of the Company's Convertible Debentures described in the Prospectus.

(vi) Capitalization. The authorized, issued and outstanding
capital stock of the Company, as of December 31, 1998, was as set forth under
the caption "Capitalization" in the Prospectus and there will be no material
change in such authorized, issued and outstanding capital stock prior to the
Closing Date. The capital stock of the Company conforms in all material respects
to the description thereof contained in the Prospectus. The outstanding shares
of capital stock of the Company have been duly and validly authorized and issued
free of preemptive rights, and are fully paid and nonassessable. The Securities
being sold hereunder by the Company and by the Selling Stockholders have been
duly and validly authorized and, when issued and delivered to and paid for by
the Underwriters pursuant to this Agreement, will be duly issued, fully paid and
nonassessable. The Securities have been approved for listing on the Nasdaq
National Market upon notice of issuance. The certificates for the Securities are
in valid and sufficient form; no holder of capital stock of the Company is
entitled to preemptive or other

<PAGE> 4

rights to subscribe for the Securities and, except as set forth in the
Prospectus, no options, warrants or other rights to purchase, agreements or
other obligations to issue, or rights to convert any obligations into or
exchange any securities for, shares of capital stock of or other ownership
interests in the Company are outstanding.

(vii) Registration Statement. There is no franchise, contract
or other document of a character required to be described in the Registration
Statement or Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required; and the statements in the Prospectus under the
headings "Risk Factors -- Our ability to issue "blank check" preferred stock and
our obligation to make severance payments could prevent or delay takeovers",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -Impact of Year 2000", "Certain Relationships and Related
Transactions" and "Description of Securities" fairly summarize the matters
therein described.

(viii) Due Authorization. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes its legal,
valid and binding obligation.

(ix) Investment Company. The Company is not and, after giving
effect to the offering and sale of the Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940, as amended.

(x) Consents. No consent, approval, authorization, filing with
or order of any court or governmental agency or body is required to be obtained
or made by the Company or the Selling Stockholders in connection with the
transactions contemplated herein, except such as have been obtained under the
Act and such as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities by the
Underwriters in the manner contemplated herein and in the Prospectus.

(xi) Market Manipulation. The Company has not taken and will
not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result, under the
Exchange Act or otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities.

(xii) No Conflicts. Neither the issue and sale of the
Securities nor the consummation of any other of the transactions herein
contemplated nor the fulfillment of the terms hereof will conflict with, or
result in a breach or violation of, or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to, (A) the charter or by-laws of the Company or any of
the Subsidiaries, (B) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of the
Subsidiaries is a party or bound or to which its or their property is subject or
(C) any statute,

<PAGE> 5

law, rule, regulation, judgment, order or decree applicable to the Company or
any of the Subsidiaries of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or any of the Subsidiaries or any of its or their properties.

(xiii) Registration Rights. As indicated in the Prospectus,
the Company has registered all applicable securities of any persons or entities
which have registration rights.

(xiv) Financial Statements. The consolidated financial
statements of the Company and its consolidated subsidiaries included or
incorporated by reference in the Prospectus and the Registration Statement
present fairly in all material respects the financial condition, results of
operations and cash flows of the Company and its consolidated subsidiaries as of
the dates and for the periods indicated. Such consolidated financial statements
comply as to form with the applicable accounting requirements of the Act, the
Exchange Act and the respective rules and regulations of the Commission
thereunder and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as otherwise noted therein).

(xv) Litigation. No action, suit or proceeding by or before
any court or governmental agency, authority or body or any arbitrator involving
the Company or any of the Subsidiaries or its or their property is pending or,
to the best knowledge of the Company, threatened that (A) could reasonably be
expected to have a material adverse effect on the performance of this Agreement
or the consummation of any of the transactions contemplated hereby or (B) could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties of the
Company and the Subsidiaries, taken as a whole, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).

(xvi) Properties. Each of the Company and the Subsidiaries
owns or leases all such properties as are necessary to the conduct of its
operations as currently conducted.

(xvii) Violations. Neither the Company nor any of the
Subsidiaries is in violation or default of (A) any provision of its charter or
bylaws, (B) the terms of any indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its property
is subject or (C) any statute, law, rule, regulation, judgment, order or decree
of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any of the
Subsidiaries or any of its or their properties, as applicable, except for any
such violation or default which would not, singly or in the aggregate, result in
a material adverse change in the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and the Subsidiaries, taken as a
whole, except as set forth in or contemplated in the Prospectus (exclusive of
any supplement thereto).

<PAGE> 6

(xviii) Accountants. Pannell Kerr Forster, Certified Public
Accountants, A Professional Corporation, which has certified the consolidated
financial statements of the Company and its consolidated subsidiaries and
delivered its report with respect to the consolidated financial statements and
schedules included or incorporated by reference in the Prospectus, are
independent accountants with respect to the Company within the meaning of the
Act and the rules and regulations of the Commission thereunder.

(xix) Taxes. Except as set forth in or contemplated by the
Prospectus (exclusive of any supplement thereto), the Company and the
Subsidiaries have filed all foreign, federal, state and local tax returns that
are required to be filed by it or them or have requested extensions thereof
(except in any case in which the failure so to file would not have a material
adverse effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and the Subsidiaries, taken as a whole,
and have paid all taxes required to be paid by it and them, and any other
assessment, fine or penalty levied against it or them, to the extent that any of
the foregoing is due and payable, except for any such assessment, fine or
penalty that is currently being contested in good faith or which would not have
a material adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and the Subsidiaries, taken as a
whole.

(xx) Labor Relations. No labor disturbance exists or is
threatened or imminent that could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and the Subsidiaries, taken as a whole,
except as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).

(xxi) Insurance. The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged; neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a currently anticipated cost that would
not have a material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and the Subsidiaries,
taken as a whole, whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).

(xxii) Dividends. No Subsidiary of the Company is currently
prohibited, directly or indirectly, from paying any dividends to the Company,
from making any other distribution on such Subsidiary's capital stock, from
repaying to the Company any loans or advances to such Subsidiary from the
Company or from transferring any of such Subsidiary's property or assets to the
Company or any other Subsidiary of the Company, except as described

<PAGE> 7

in or contemplated by the Prospectus (exclusive of any amendment thereto) and
subject to the provisions of The Norwest Bank Minnesota, NA Conditional Credit
Line, dated October 9, 1997, and all Guarantee Agreements, Security Agreements
and Indentures related thereto.

(xxiii) Permits. Except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto), the Company and the
Subsidiaries (A) possess all certificates, authorizations and permits, whether
from federal, state or foreign regulatory authorities, necessary to conduct
their respective businesses, except where the failure to possess such
certificates, authorizations and permits would not, singly or in the aggregate,
result in a material adverse change in the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and the Subsidiaries,
taken as a whole, whether or not arising from transactions in the ordinary
course of business and (B) have not received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a material adverse change in the
condition (financial or otherwise), prospects, earnings, business or properties
of the Company and the Subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business.

(xxiv) Internal Systems Controls. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (A) transactions are executed in accordance
with management's general or specific authorizations; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability; (C) access to assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

(xxv) Intellectual Property. The Company and the Subsidiaries
own or have obtained licenses or other rights for all patents, patent
applications, trade and service marks, trade names, copyrights, inventions,
trade secrets, technology, know-how and other intellectual properties
(collectively, the "Intellectual Property"), necessary for the conduct of their
businesses as now conducted or as proposed to be conducted in the Prospectus,
except where the failure to so own or obtain licenses or other rights would not
singly or in the aggregate have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, businesses or properties of the
Company and the Subsidiaries, taken as a whole. Except as set forth in the
Prospectus, (A) there are no rights of third parties to any such Intellectual
Property that would materially impair the rights of the Company or any
Subsidiary therein; (B) to the Company's knowledge, there is no material
infringement by third parties of any such Intellectual Property; (C) there is no
pending or, to the Company's knowledge, threatened action, suit, proceeding or
claim by others challenging the Company's or any Subsidiary's rights in or to
any such Intellectual Property, and the Company is unaware of any facts which
would form a reasonable basis for any such claim; (D) there is no pending or, to
the Company's knowledge, threatened

<PAGE> 8

action, suit, proceeding or claim by others challenging the validity or scope of
any such Intellectual Property, and the Company is unaware of any facts which
would form a reasonable basis for any such claim; and (E) there is no pending
or, to the Company's knowledge, threatened action, suit, proceeding or claim by
others that the Company or any of the Subsidiaries infringes or otherwise
violates any patent, trademark, copyright, trade secret or other proprietary
rights of others, and the Company is unaware of any fact which would form a
reasonable basis for any such claim.

(xxvi) Relationship with Underwriters. Except as disclosed in
the Registration Statement and the Prospectus, the Company (A) does not have any
material lending or other relationship with any bank affiliate or lending
affiliate of Advest, Inc. and (B) does not intend to use any of the proceeds
from the sale of the Securities hereunder to repay any outstanding debt owed to
any affiliate of any of the Underwriters.

Any certificate signed by any officer of the Company and delivered
to the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each Underwriter.

(b) Selling Stockholders. Each Selling Stockholder severally
represents and warrants to, and agrees with, each Underwriter as set forth below
in this Section 1:

(i) Title. Such Selling Stockholder is the lawful owner of the
Securities to be sold by it hereunder and upon sale and delivery of, and payment
for, such Securities, as provided herein, such Selling Stockholder will convey
to the Underwriters good and marketable title to such Securities, free and clear
of all liens, encumbrances, equities and claims whatsoever.

(ii) Market Manipulation. Such Selling Stockholder has not
taken and will not take, directly or indirectly, any action designed to or which
has constituted or which might reasonably be expected to cause or result, under
the Exchange Act or otherwise, in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Securities.

(iii) Consents and Approvals. No consent, approval,
authorization or order of any court, governmental agency or body or other person
is required for the consummation by such Selling Stockholder of the transactions
contemplated herein, except such as may have been obtained under the Act and
such as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities by the
Underwriters and such other approvals as have been obtained.

(iv) No Violation. Neither the sale of the Securities being
sold by such Selling Stockholder nor the consummation of any other of the
transactions herein contemplated

<PAGE> 9

by such Selling Stockholder nor the fulfillment of the terms hereof by such
Selling Stockholder will conflict with, result in a breach or violation of, or
constitute a default under any law or the terms of any indenture or other
agreement or instrument to which such Selling Stockholder is a party or by which
he is bound, or any judgment, order or decree applicable to such Selling
Stockholder of any court, regulatory body, administrative agency, governmental
body or arbitrator having jurisdiction over such Selling Stockholder.

Any certificate signed by any representative of a Selling
Stockholder and delivered to the Representatives or counsel for the Underwriters
in connection with the offering of the Securities shall be deemed a
representation and warranty by such Selling Stockholder, as to the matters
covered thereby, to each Underwriter.

2. Purchase and Sale.

(a) Purchase Price. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, (i) the
Company agrees to sell 2,100,000 shares of Underwritten Securities, as well as
up to 307,500 shares of Option Securities, (ii) each Selling Stockholder agrees,
severally and not jointly, to sell the number of Underwritten Securities and
Option Securities set forth opposite the name of each such Selling Stockholder
on Schedule I hereto and (iii) each Underwriter agrees, severally and not
jointly, to purchase, at a purchase price of [$ ] per share, the amount of the
Underwritten Securities set forth opposite such Underwriter's name in Schedule
II hereto.

(b) Option Grant. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, (i) the
Company agrees to grant an option to the several Underwriters to purchase,
severally and not jointly, up to 307,500 shares of Option Securities and (ii)
each Selling Stockholder hereby grants an option to the several Underwriters to
purchase, severally and not jointly, the number of Option Securities set forth
opposite the name of each such Selling Stockholder on Schedule I, all of which
shall be exercised at the same purchase price per share as the Underwriters
shall pay for the Underwritten Securities. Said options may be exercised only to
cover over-allotments in the sale of the Underwritten Securities by the
Underwriters. Said options may be exercised in whole or in part at any time on
or before the 30th day after the date of the Prospectus upon written notice by
the Representatives to the Company setting forth the number of shares of the
Option Securities as to which the several Underwriters are exercising the
options and the settlement date. In the event that the Underwriters exercise
less than their full over-allotment option, (A) the number of shares of the
Option Securities to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares, and (B) the Company
and each Selling Stockholder shall sell that number of Option Securities based
on the same, respective percentage of Option Securities which they offered had
the Underwriters exercised their full over-allotment option.

<PAGE> 10

3. Delivery and Payment. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third Business
Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
May __, 1999, or at such time on such later date not more than three Business
Days after the foregoing date as the Representatives shall designate, which date
and time may be postponed by agreement among the Representatives, the Company
and the Selling Stockholders or as provided in Section 9 hereof (such date and
time of delivery and payment for the Securities being herein called the "Closing
Date"). Delivery of the Securities shall be made to the Representatives for the
respective accounts of the several Underwriters against payment by the several
Underwriters through the Representatives of the respective aggregate purchase
prices of the Securities being sold by the Company and each of the Selling
Stockholders to or upon the order of the Company and the Custodian on behalf of
the Selling Stockholders, respectively, by wire transfer payable in same-day
funds to the accounts specified by the Company and an Attorney-in-Fact (as
defined in the Custody Agreement) on behalf of the Selling Stockholders.
Delivery of the Underwritten Securities and the Option Securities shall be made
through the facilities of the Depository Trust Company, 55 North Water Street,
New York, New York 10041 unless the Representatives shall otherwise instruct.

Each Selling Stockholder will pay all applicable state transfer
taxes, if any, involved in the transfer to the several Underwriters of the
Securities to be purchased by them from such Selling Stockholder and the
respective Underwriters will pay any additional stock transfer taxes involved in
further transfers.

If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company and the Selling
Stockholders will deliver the Option Securities (at the expense of the Company)
to the Representatives on the date specified by the Representatives (which shall
be within three Business Days after exercise of said option) for the respective
accounts of the several Underwriters, against payment by the several
Underwriters through the Representatives of the purchase price thereof to or
upon the order of the Company and the Selling Stockholders, as appropriate, by
wire transfer payable in same-day funds to the accounts specified by the Company
and the Selling Stockholders. If settlement for the Option Securities occurs
after the Closing Date, the Company and the Selling Stockholders will deliver to
the Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.

4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.

<PAGE> 11

5. Agreements.

(a) Agreements by the Company. The Company agrees with the several
Underwriters that:

(i) Effectiveness; Filing of Amendments. The Company will use
its best efforts to cause the Registration Statement, if not effective at the
Execution Time, and any amendment thereof, to become effective. Prior to the
termination of the offering of the Securities, the Company will not file any
amendment of the Registration Statement or supplement to the Prospectus or any
Rule 462(b) Registration Statement unless the Company has furnished you a copy
for your review prior to filing and will not file any such proposed amendment or
supplement to which you reasonably object. Subject to the foregoing sentence, if
the Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 424(b), the
Company will cause the Prospectus, properly completed, and any supplement
thereto to be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The Company will
promptly advise the Representatives (A) when the Registration Statement, if not
effective at the Execution Time, shall have become effective, (B) when the
Prospectus, and any supplement thereto, shall have been filed (if required) with
the Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration
Statement shall have been filed with the Commission, (C) when, prior to
termination of the offering of the Securities, any amendment to the Registration
Statement shall have been filed or become effective, (D) of any request by the
Commission or its staff for any amendment of the Registration Statement, or any
Rule 462(b) Registration Statement, or for any supplement to the Prospectus or
for any additional information, (E) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (F) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the institution
or threatening of any proceeding for such purpose. The Company will use its best
efforts to prevent the issuance of any such stop order or the suspension of any
such qualification and, if issued, to obtain as soon as possible the withdrawal
thereof.

(ii) Amendments. If, at any time when a prospectus relating to
the Securities is required to be delivered under the Act, any event occurs as a
result of which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein in the light of the circumstances under which they
were made not misleading, or if it shall be necessary to amend the Registration
Statement or supplement the Prospectus to comply with the Act or the Exchange
Act or the respective rules thereunder, the Company promptly will (A) notify the
Representatives of any such event; (B) prepare and file with the Commission,
subject to the second sentence of Section 5(a)(i) hereof, an amendment or
supplement which will correct such statement or omis-

11
<PAGE> 12

sion or effect such compliance; and (C) supply any supplemented Prospectus to
you in such quantities as you may reasonably request.

(iii) Earnings Statement. As soon as practicable, the Company
will make generally available to its security holders and to the Representatives
an earnings statement or statements of the Company and the Subsidiaries which
will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the
Act.

(iv) Copies of the Registration Statement. The Company will
furnish, without charge, to the Representatives and counsel for the Underwriters
signed copies of the Registration Statement (including exhibits thereto) and to
each other Underwriter a copy of the Registration Statement (without exhibits
thereto) and, so long as delivery of a prospectus by an Underwriter or dealer
may be required by the Act, as many copies of each Preliminary Prospectus and
the Prospectus and any supplement thereto as the Representatives may reasonably
request. The Company will pay the expenses of printing and producing all
documents relating to the offering.

(v) Qualification of Securities. The Company will arrange, if
necessary, for the qualification of the Securities for sale under the laws of
such jurisdictions as the Representatives may designate, will maintain such
qualifications in effect so long as required for the distribution of the
Securities and will pay any fee of the National Association of Securities
Dealers, Inc. (the "NASD") in connection with NASD's review of the offering;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Securities, in any jurisdiction where
it is not now so subject.

(vi) Lock-Up. The Company will not, without the prior written
consent of the Representatives, for a period commencing on the date of the final
prospectus relating to the offering contemplated by the Registration Statement
and continuing for 180 days thereafter, offer, sell, offer to sell, solicit an
offer to buy, contract to sell, encumber, distribute, pledge, grant any option
for the sale of, or otherwise transfer or dispose of, directly or indirectly, in
one or a series of transactions (or enter into any transaction which is designed
to, or reasonably might be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company) any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock or any
securities convertible or exercisable into or exchangeable for shares of Common
Stock; provided, however, that (i) the Company may make automatic quarterly
grants of options to its non-employee directors and may issue and sell Common
Stock pursuant to any director or employee stock option plan, stock ownership
plan or dividend reinvestment plan of the Company in effect at the Execution
Time, (ii) the Company may issue Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding at the Execution Time, (iii)
the Company may issue warrants to purchase up to 125,000 shares of Common Stock
to Titan Sports, Inc. and a related party as well as warrants to purchase up to
150,000 shares of Common Stock to THQ Inc. pursuant to the Company's joint
venture, as described in the Prospectus, and (iv)

12
<PAGE> 13

the Company may issue and sell up to 188,235 shares of Common Stock, subject to
reasonable adjustments, in connection with the Company's acquisition of Berk
Corporation.

(vii) Market Manipulation. The Company will not take, directly
or indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result, under the Exchange Act or otherwise,
in stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.

(viii) Certificate, Letters and Opinions. The Company will
cause (i) the certificate and the letters to be delivered to the several
Underwriters pursuant to paragraphs (b) and (e) of Section 6 at the Execution
Time and the Closing Date, also to be addressed to the directors of the Company
and (ii) each opinion of counsel delivered to the Underwriters pursuant to
paragraph (b) of Section 6 on the Closing Date to be accompanied by a letter
from the counsel authorizing the directors to rely upon such opinion to the same
extent as if it had been addressed to them.

(ix) Financial Advisory Fee. The Company will pay to Advest,
Inc. a one-time financial advisory fee in the amount of $50,000 for general
financial advisory services rendered by Advest, Inc. to the Company, which fee
shall be due and payable on the Closing Date.

(x) Right of First Offer. Pending the completion of the
offering contemplated herein and for a nine month period following the Closing
Date, the Company agrees to grant Advest, Inc. the right of first offer to
provide the Company with investment banking services in connection with (i)
subsequent public offerings of equity securities and (ii) merger and acquisition
advisory services relating to a sale or other disposition of the Company or a
material portion of the assets thereof. In connection with such investment
banking services, the Company will, prior to contacting other investment banking
or financial advisory firms, provide Advest, Inc. with a description of the
scope of the contemplated investment banking services and invite Advest, Inc. to
submit a proposal within five business days for providing such investment
banking services to the Company. After contacting Advest, Inc., the Company may
contact other investment banking firms concerning fees for contemplated
investment banking services. Thereafter, the Company will give Advest, Inc. the
opportunity to modify its proposal in light of other proposals the Company may
receive. Provided that Advest, Inc.'s fees are no less favorable than those
submitted by another nationally recognized investment banking firm, the Company
will engage Advest, Inc. exclusively to provide such investment banking
services.

(b) Agreements of the Selling Stockholders. Each Selling Stockholder
agrees with the several Underwriters that:

(i) Lock-Up. The Selling Stockholders shall have executed the
form of Lock-up Agreement attached hereto as Exhibit B.

13
<PAGE> 14

(ii) Notice of Change. Such Selling Stockholder will advise
you promptly, and if requested by you, will confirm such advice in writing, so
long as delivery of a prospectus relating to the Securities by an underwriter or
dealer may be required under the Act, of (A) any material change in the
Company's condition (financial or otherwise), prospects, earnings, business or
properties which comes to the attention of such Selling Stockholder or (B) any
material change in the information set forth in the Registration Statement or
the Prospectus relating to such Selling Stockholder.

(iii) Market Manipulation. Such Selling Stockholder will not
take any action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.

(c) Fees and Expenses. The Company agrees to pay the costs and
expenses relating to the following matters: (i) the preparation, printing or
reproduction and filing with the Commission of the Registration Statement
(including the financial statements therein and the exhibits thereto), each
Preliminary Prospectus, the Prospectus, and each amendment or supplement to any
of them; (ii) the printing (or reproduction) and delivery (including postage,
air freight charges and charges for counting and packaging) of such copies of
the Registration Statement, each Preliminary Prospectus, the Prospectus, and all
amendments or supplements to any of them, as may, in each case, be reasonably
requested for use in connection with the offering and sale of the Securities;
(iii) the preparation, printing, authentication, issuance and delivery of
certificates for the Securities, including any stamp or transfer taxes in
connection with the original issuance or the sale of the Securities; (iv) the
printing (or reproduction) and delivery of this Agreement, any other
underwriting-related agreement, any blue sky memorandum and all other agreements
or documents printed (or reproduced) and delivered in connection with the
offering of the Securities; (v) the listing of the Securities on the Nasdaq
National Market; (vi) any registration or qualification of the Securities for
offer and sale under the securities or blue sky laws of the several states
(including filing fees and the reasonable fees and expenses of counsel for the
Underwriters relating to such registration and qualification); (vii) any filings
required to be made with the NASD (including filing fees and the reasonable fees
and expenses of counsel for the Underwriters relating to such filings, which
fees, together with the counsel fees described in subparagraph (vi) shall not
exceed $5,000); (viii) the transportation and other expenses incurred by or on
behalf of Company representatives in connection with presentations to
prospective purchasers of the Securities; (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company; and (x) all other costs and expenses incident
to the performance by the Company of its obligations hereunder. Each Selling
Stockholder agrees to pay the fees and expenses of its counsel (including local
and special counsel) and all costs and expenses, other than those set forth
above, incident to the performance of his obligations hereunder.

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<PAGE> 15

6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders contained herein as of the Execution Time, the Closing Date and any
settlement date pursuant to Section 3 hereof, to the accuracy of the statements
of the Company and the Selling Stockholders made in any certificates pursuant to
the provisions hereof, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder and to the following
additional conditions:

(a) Effective Time. If the Registration Statement has not become
effective prior to the Execution Time, unless the Representatives agree in
writing to a later time, the Registration Statement will become effective not
later than (i) 6:00 PM New York City time on the date of determination of the
public offering price, if such determination occurs at or prior to 3:00 PM New
York City time on such date or (ii) 9:30 AM on the Business Day following the
day on which the public offering price is determined, if such determination
occurs after 3:00 PM New York City time on such date. If filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b), the
Prospectus, and any such supplement, will be filed in the manner and within the
time period required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or threatened.

(b) Opinion of Counsel to the Company. The Company shall have
furnished to the Representatives the opinion of Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP, counsel for the Company, dated the Closing Date and
addressed to the Representatives, to the effect that:

(i) Organization. Each of the Company and each of its
Subsidiaries has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction in which it is organized,
with full corporate power and authority to own or lease, as the case may be, and
to operate its properties and conduct its business as described in the
Prospectus, and is duly qualified to do business as a foreign corporation and is
in good standing under the laws of each jurisdiction set forth on a schedule to
such opinion.

(ii) Capitalization of Subsidiaries. All the outstanding
shares of capital stock of each Subsidiary have been duly and validly authorized
and issued and are fully paid and nonassessable and, except as otherwise set
forth in the Prospectus, all outstanding shares of capital stock of the
Subsidiaries are held of record by the Company, either directly or through
wholly owned subsidiaries, free and clear of any perfected security interest
and, to the knowledge of such counsel, after due inquiry, any other security
interest, claim, lien or encumbrance, except that all of the outstanding shares
of each of the Subsidiaries have been pledged in connection with the issuance of
the Company's Convertible Debentures described in the Prospectus.

15
<PAGE> 16

(iii) Capital Stock. The capital stock of the Company conforms
in all material respects to the description thereof contained in the Prospectus;
the outstanding shares of Common Stock (including the Securities being sold
hereunder by the Selling Stockholders) have been duly and validly authorized and
issued and are fully paid and nonassessable; the Securities being sold hereunder
by the Company have been duly and validly authorized, and, when issued and
delivered to and paid for by the Underwriters pursuant to this Agreement, will
be fully paid and nonassessable; all of the Securities have been approved for
listing on the Nasdaq National Market; the form of certificates for the
Securities complies with the requirements of the Delaware General Corporation
Law; the holders of outstanding shares of capital stock of the Company are not
entitled to preemptive or other rights to subscribe for the Securities; and,
except as set forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or rights to convert any
obligations into or exchange any securities for, shares of capital stock of or
other ownership interests in the Company are, to the knowledge of such counsel,
outstanding.

(iv) Litigation. To the knowledge of such counsel, there is no
pending or threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of the Subsidiaries or its or their property of a character required to
be disclosed in the Registration Statement that is not adequately disclosed in
the Prospectus, and there is no franchise, contract or other document of a
character required to be described in the Registration Statement or Prospectus,
or to be filed as an exhibit thereto, that is not described or filed as
required.

(v) Effectiveness; Compliance. Such counsel has been advised
that the Registration Statement has become effective under the Act; any required
filing of the Prospectus, and any supplements thereto, pursuant to Rule 424(b)
has been made in the manner and within the time period required by Rule 424(b);
to the knowledge of such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued, no proceedings for that purpose have
been instituted or threatened and the Registration Statement and the Prospectus
(other than the financial statements and other financial information contained
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the applicable requirements of the Act and the
Exchange Act and the respective rules thereunder.

(vi) Due Authorization. This Agreement has been duly
authorized, executed and delivered by the Company.

(vii) Investment Company. The Company is not and, after giving
effect to the offering and sale of the Securities and the application of the
proceeds thereof as described in the Prospectus, will not be, an "investment
company" as defined in the Investment Company Act of 1940, as amended.

(viii) Consents. No consent, approval, authorization, filing
with or order of any court or governmental agency or body is required for the
consummation by the Company or the Selling Stockholders of the transactions
contemplated herein, except such as have been

16
<PAGE> 17

obtained under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters in the manner contemplated in this Agreement and
in the Prospectus and such other approvals (specified in such opinion) as have
been obtained.

(ix) Conflicts. Neither the issue and sale of the Securities,
nor the consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will, in any material respect, conflict
with, result in a breach or violation of or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the Subsidiaries
pursuant to, (A) the charter or by-laws of the Company or the Subsidiaries, or
(B) the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument, known to such counsel, to which the Company or any of the
Subsidiaries is a party or bound or to which its or their property is subject,
or (C) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any of the Subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or the Subsidiaries or any of its or their
properties.

(x) No Registration Rights. As indicated in the Prospectus,
the Company has registered all applicable securities of any persons or entities
which have registration rights.

Such counsel shall further state that they have no reason to believe that on the
Effective Date or at the Execution Time the Registration Statement contains or
contained any untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of its date and on
the Closing Date includes or included any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (in each case, other
than the financial statements and other financial information contained therein,
as to which such counsel need express no belief).

In rendering the foregoing opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State of
New York, the Federal laws of the United States or the General Corporation Law
of the State of Delaware, to the extent they deem proper and specified in such
opinion, upon the opinion of other counsel of good standing whom they believe to
be reliable and who are satisfactory to counsel for the Underwriters and (B) as
to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. References to the
Prospectus in this paragraph 6(b) include any supplements thereto at the Closing
Date. The opinion of any such other counsel shall be rendered to the
Underwriters at the request of the Company and shall so state therein and shall
further state that counsel for the Underwriters may rely upon such opinion in
rendering their opinion to the Underwriters.

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<PAGE> 18

(c) Opinion of Counsel to the Selling Stockholders. Each of the
Selling Stockholders shall have furnished to the Representatives the opinion of
its counsel (who shall be acceptable to the Representatives) dated the Closing
Date and addressed to the Representatives, to the effect that:

(i) Due Authorization. This Agreement has been duly
authorized, executed and delivered by such Selling Stockholder. Such Selling
Stockholder has full legal right and authority to sell, transfer and deliver, in
the manner provided in this Agreement, the Securities being sold by it
hereunder.

(ii) Title. Good and valid title to the Securities being sold
hereunder by such Selling Stockholder, free and clear of all liens,
encumbrances, equities or claims, has been transferred to each Underwriter that
has purchased such Securities without notice of an adverse claim thereto (within
the meaning of the Uniform Commercial Code of the State of New York).

(iii) No Consent. All consents, approvals, authorizations and
filings required to be made or obtained by such Selling Stockholder for the sale
and delivery of the Securities being sold by it to the Underwriters hereunder
have been made or obtained, as the case may be.

(iv) No Conflict. Neither the sale of the Securities being
sold by such Selling Stockholder, nor the consummation of the transactions
herein contemplated by such Selling Stockholder nor the fulfillment of the terms
hereof by such Selling Stockholder will result in a breach or violation of, or
constitute a default under, (A) the charter or by-laws or other organizational
documents of such Selling Stockholder, or (B) the terms of any indenture or
other agreement or instrument, known to such counsel and to which such Selling
Stockholder is a party or by which it or its properties are bound, or (C) any
law, judgment, order or decree known to such counsel of any court, regulatory
body, administrative agency, governmental body or arbitrator having jurisdiction
over such Selling Stockholder.

In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws of any jurisdiction other than the State of New York, the
Federal laws of the United States and the General Corporation Law of the State
of Delaware, to the extent they deem proper and specified in such opinion, upon
the opinion of other counsel of good standing whom they believe to be reliable
and who are satisfactory to counsel for the Underwriters, and (B) as to matters
of fact, to the extent they deem proper, on certificates of officers or other
representatives of such Selling Stockholder and public officials. The opinion of
any such other counsel shall be rendered to the Underwriters at the request of
such Selling Stockholder and shall so state therein and shall further state that
counsel for the Underwriters may rely upon such opinion in rendering their
opinion to the Underwriters.

(d) Opinion of Counsel to the Underwriters. The Representatives
shall have received from Morgan, Lewis & Bockius LLP, counsel for the
Underwriters, such opinion or

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<PAGE> 19

opinions, dated the Closing Date and addressed to the Representatives, with
respect to the issuance and sale of the Securities, the Registration Statement,
the Prospectus (together with any supplement thereto) and other related matters
as the Representatives may reasonably require, and the Company and each Selling
Stockholder shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.

(e) Certificate from the Company. The Company shall have furnished
to the Representatives a certificate of the Company, signed by the Chairman of
the Board or the President and the principal financial or accounting officer of
the Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the Prospectus,
any supplements to the Prospectus and this Agreement and that:

(i) Bring-down of Representations and Warranties. The
representations and warranties of the Company in this Agreement are true and
correct in all material respects on and as of the Closing Date with the same
effect as if made on the Closing Date and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied by it at or prior to the Closing Date.

(ii) Stop Orders. The Company has not received or become aware
of the issuance of any stop order suspending the effectiveness of the
Registration Statement, nor, to the Company's knowledge, have proceedings for
that purpose been instituted or threatened.

(iii) Adverse Change. Since the date of the most recent
financial statements included or incorporated by reference in the Prospectus
(exclusive of any supplement thereto), there has been no material adverse change
in the condition (financial or otherwise), prospects, earnings, business or
properties of the Company and the Subsidiaries, taken as a whole, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto).

(f) Certificate from the Selling Stockholders. Each Selling
Stockholder shall have furnished to the Representatives a certificate, signed by
a duly authorized person and dated the Closing Date, to the effect that the
representations and warranties of such Selling Stockholder in this Agreement are
true and correct in all material respects on and as of the Closing Date to the
same effect as if made on the Closing Date and such Selling Stockholder has
complied with all the agreements and satisfied all the conditions on its part to
be performed or satisfied by it at or prior to the Closing Date.

(g) Accountant's Letters. At the Execution Time and at the Closing
Date, the Company shall have caused Pannell Kerr Foster, Certified Public
Accountants, A Professional Corporation to furnish to the Representatives
letters, dated respectively as of the Execution Time and as of the Closing Date,
in form and substance satisfactory to the Representatives, confirming that they
are independent accountants within the meaning of the Act and the Exchange Act
and

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<PAGE> 20

the applicable published rules and regulations thereunder and covering other
customary matters with respect to the Registration Statement, the Preliminary
Prospectus and the Prospectus.

(h) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter or
letters referred to in Section 6(g) hereof or (ii) any change, or any
development involving a prospective change, in or affecting the condition
(financial or otherwise), earnings, business or properties of the Company and
the Subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto) the effect of which, in any
case referred to in clause (i) or (ii) above, is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment thereof)
and the Prospectus (exclusive of any supplement thereto).

(i) Lock-Up Agreements. At or prior to the Execution Time, a letter
substantially in the form of Exhibit B hereto, shall have been furnished to the
Representatives by each officer and director of the Company.

(j) Listing of Securities. The Securities shall have been approved
for listing on the Nasdaq National Market upon official notice of issuance.

(k) Additional Information. Prior to the Closing Date, the Company
and the Selling Stockholders shall have furnished to the Representatives such
further information, certificates and documents as the Representatives may
reasonably request.

If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of such
cancellation shall be given to the Company and each Selling Stockholder in
writing or by telephone or facsimile confirmed in writing.

The documents required to be delivered by this Section 6 shall be
delivered at the office of Morgan, Lewis & Bockius LLP, counsel for the
Underwriters, at 101 Park Avenue, New York, New York 10178, on the Closing Date.

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<PAGE> 21

7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company or any Selling
Stockholder to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally through Advest, Inc. on demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the proposed purchase
and sale of the Securities. If the Company is required to make any payments to
the Underwriters under this Section 7 because of any Selling Stockholder's
refusal, inability or failure to satisfy any condition to the obligations of the
Underwriters set forth in Section 6, the Selling Stockholders pro rata in
proportion to the percentage of Securities to be sold by each shall reimburse
the Company on demand for all amounts so paid.

8. Indemnification and Contribution.

(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless each Underwriter, the directors, officers, employees and
agents of each Underwriter and each person who controls any Underwriter within
the meaning of either the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company specifically for inclusion therein by or on behalf of any
Underwriter through the Representatives. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.

(b) Indemnification by Selling Stockholders. Each Selling
Stockholder agrees to indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter, and each person
who controls any Underwriter within the meaning of either

21
<PAGE> 22

the Act or the Exchange Act, to the same extent as the foregoing indemnity to
each Underwriter, but only with reference to written information relating to
such Selling Stockholder furnished to the Company by or on behalf of such
Selling Stockholder specifically for inclusion in the documents referred to in
paragraph (a) above. This indemnity agreement will be in addition to any
liability which any Selling Stockholder may otherwise have. The Underwriters
acknowledge that the information related to such Selling Stockholder set forth
in the table and the footnotes thereto appearing under the heading "Principal
and Selling Stockholders" in any Preliminary Prospectus and the Prospectus
constitutes the only information furnished in writing by or on behalf of such
Selling Stockholder for inclusion in any Preliminary Prospectus or the
Prospectus.

(c) Indemnification by Underwriters. Each Underwriter severally and
not jointly agrees to indemnify and hold harmless the Company, each of its
directors, each of its officers who signs the Registration Statement, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act and each Selling Stockholder, to the same extent as the foregoing
indemnities to each Underwriter, but only with reference to written information
relating to such Underwriter furnished to the Company by or on behalf of such
Underwriter through the Representatives specifically for inclusion in the
documents referred to in paragraph (a) above. This indemnity agreement will be
in addition to any liability which any Underwriter may otherwise have. The
Company and the Selling Stockholders acknowledge that the statements set forth
in the last paragraph of the cover page regarding delivery of the Securities and
paragraphs 1, 2, 3, 4, 10 and 11 under the heading "Underwriting" in any
Preliminary Prospectus and the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for inclusion
in any Preliminary Prospectus or the Prospectus.

(d) Notice of Action. Promptly after receipt by an indemnified party
under this Section 8 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof, but the failure so to notify the
indemnifying party (i) will not relieve it from liability under paragraph (a),
(b) or (c) above unless and to the extent it did not otherwise learn of such
action and such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a), (b) or (c) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemnified party or parties except as
set forth below); provided, however, that such counsel shall be reasonably
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate counsel if (i) the use of counsel chosen by the
indemnifying

22
<PAGE> 23

party to represent the indemnified party would present such counsel with a
conflict of interest, (ii) the actual or potential defendants in, or targets of,
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, (iii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.

(e) Contribution. In the event that the indemnity provided in
paragraph (a), (b) or (c) of this Section 8 is unavailable or insufficient to
hold harmless an indemnified party for any reason, the Company and the
Underwriters severally agree to contribute to the aggregate of the losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same) (collectively,
"Losses") to which the Company and one or more of the Underwriters may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company, the Selling Stockholders and the Underwriters from the
offering of the Securities; provided, however, that in no case shall any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible for any amount in
excess of the underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company, the
Selling Stockholders and the Underwriters severally shall contribute in such
proportion as is appropriate to reflect the relative fault of the Company, the
Selling Stockholders and the Underwriters in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Underwriters shall be deemed to be
equal to the total underwriting discounts and commissions, in each case as set
forth on the cover page of the Prospectus and under the heading "Underwriting",
and the Company shall be deemed to receive all remaining benefits (which shall
be deemed to be equal to the total net proceeds from the Offering (before
deducting expenses) received by it and the Selling Stockholders. Relative fault
shall be determined by reference to, among other things, whether any untrue or
any alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information provided by the
Company, the Selling Stockholders or the Underwriters, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission. The Company, the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contribution were determined by pro rata allocation or any other method of
allocation which does not take

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<PAGE> 24

account of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (e), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who controls an
Underwriter within the meaning of either the Act or the Exchange Act and each
director, officer, employee and agent of an Underwriter shall have the same
rights to contribution as such Underwriter, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each officer
of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (e).

9. Default by an Underwriter. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule II hereto bears to the aggregate amount
of Securities set forth opposite the names of all the remaining Underwriters)
the Securities which the defaulting Underwriter or Underwriters agreed but
failed to purchase; provided, however, that in the event that the aggregate
amount of Securities which the defaulting Underwriter or Underwriters agreed but
failed to purchase shall exceed 10% of the aggregate amount of Securities set
forth in Schedule II hereto, the remaining Underwriters shall have the right to
purchase all, but shall not be under any obligation to purchase any, of the
Securities, and if such nondefaulting Underwriters do not purchase all the
Securities, this Agreement will terminate without liability to any nondefaulting
Underwriter, the Selling Stockholders or the Company. In the event of a default
by any Underwriter as set forth in this Section 9, the Closing Date shall be
postponed for such period, not exceeding five Business Days, as the
Representatives shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall relieve
any defaulting Underwriter of its liability, if any, to the Company, the Selling
Stockholders and any nondefaulting Underwriter for damages occasioned by its
default hereunder.

10. Termination. This Agreement shall be subject to termination in
the absolute discretion of the Representatives, by notice given to the Company
prior to delivery of and payment for the Securities, if at any time prior to
such time (i) trading in the Company's Common Stock shall have been suspended by
the Commission or the Nasdaq National Market or trading in securities generally
on the Nasdaq National Market shall have been suspended or limited or minimum
prices shall have been established on such Exchange, (ii) a banking moratorium
shall have been declared either by Federal or New York State authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the sole judgment of the Representatives, impractical or

24
<PAGE> 25

inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Prospectus (exclusive of any supplement thereto).

11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of each Selling Stockholder and of the Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter,
any Selling Stockholder or the Company or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Securities. The provisions of Sections 5(c), 7 and 8
hereof shall survive the termination or cancellation of this Agreement. The
provision of Sections 5(a)(vi) and 5(b)(i) shall terminate upon the termination
or cancellation of this Agreement.

12. Notices. All communications hereunder will be in writing and
effective only on receipt, and:

(a) if sent to the Representatives, will be mailed, delivered or
telefaxed to Advest, Inc., One Rockefeller Plaza, 20th Floor, New York, New York
10020, Attention: Brett A. Chamberlain (Fax number: (212) 584-4292) (with a copy
forwarded to Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, NY 10178,
Attention: Christopher T. Jensen, Esq.
(Fax number: (212) 309-6273));

(b) if sent to the Company, will be mailed, delivered or telefaxed
to JAKKS Pacific, Inc., 22761 Pacific Coast Highway, Malibu, CA 90265,
Attention: Stephen G. Berman (Fax number: (310) 456-7099) (with a copy forwarded
to Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, 750 Lexington Avenue,
New York, New York 10022, Attention: Murray L. Skala (Fax number: (212)
888-7776)); or

(c) if sent to any Selling Stockholder, will be mailed, delivered or
telefaxed and confirmed to it at the address set forth in Schedule I hereto.

13. Successors and Reliance. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and the officers and directors and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.

14. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.

15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.

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<PAGE> 26

16. Headings. The section headings used herein are for convenience
only and shall not affect the construction hereof.

17. Submission to Jurisdiction, Etc. (a) To the fullest extent
permitted by applicable law, the Company and the Selling Stockholders
irrevocably submit to the jurisdiction of any federal or state court in the
City, County and State of New York, United States of America, in any suit or
proceeding based on or arising under this Agreement, the Custody Agreement, the
Registration Statement, the Prospectus or any Preliminary Prospectus, and
irrevocably agree that all claims in respect of any such suit or proceeding may
be determined in any such court. The Company and the Selling Stockholders
irrevocably and fully waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. They hereby irrevocably designate and
appoint Murray L. Skala (the "Process Agent"), as their authorized agent upon
whom process may be served in any such suit or proceeding, it being understood
that the designation and appointment of the Process Agent as such authorized
agent shall become effective immediately without any further action on the part
of the Selling Stockholders. The Selling Stockholders represent to the
Underwriters that they have notified the Process Agent of such designation and
appointment and that the Process Agent has accepted the same in writing. The
Selling Stockholders hereby irrevocably authorize and direct the Process Agent
to accept such service. They further agree that service of process upon the
Process Agent and written notice of said service to the Selling Stockholders
mailed by prepaid registered first-class mail or delivered to the Process Agent
at its principal office, shall be deemed in every respect effective service of
process upon the Selling Stockholders in any such suit or proceeding. Nothing
herein shall affect the right of any Underwriter or any person controlling such
Underwriter to serve process in any other manner permitted by law. The Selling
Stockholders further agree to take any and all action, including the execution
and filing of any and all such documents and instruments as may be necessary to
continue the designation and appointment of the Process Agent in full force and
effect so long as they have any outstanding obligations under this Agreement or
the Custody Agreement. If for any reason the Process Agent is no longer able to
serve as such authorized agent, the Selling Stockholders shall appoint another
agent reasonably satisfactory to Advest, Inc. To the extent that the Selling
Stockholders have or hereafter may acquire any immunity from jurisdiction of any
court or from any legal process (whether through service of note, attachment
prior to judgment, attachment in aid of execution, executor or otherwise) with
respect to themselves or their properties, they hereby irrevocably waive such
immunity in respect of their obligations under this Agreement and the Custody
Agreement, to the extent permitted by law.

(b) The obligation of the parties to make payments hereunder
is in U.S. dollars (the "Obligation Currency") and such obligation shall not be
discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any currency other than the Obligation Currency
or any other realization in such other currency, whether as proceeds of set-off,
security, guarantee, distributions, or otherwise, except to the extent to which
such tender, recovery or realization shall result in the effective receipt by
the party which is to receive such payment of the full amount of the Obligation
Currency expressed to be payable

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<PAGE> 27

hereunder, and the party liable to make such payment agrees to indemnify the
party which is to receive such payment (as an additional, separate and
independent cause of action) for the amount (if any) by which such effective
receipt shall fall short of the full amount of the Obligation Currency expressed
to be payable hereunder and such obligation to indemnify shall not be affected
by judgment being obtained for any other sums due under this Agreement.

18. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.

"Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.

"amend," "amendment" or "supplement" with respect to the
Registration Statement, any Preliminary Prospectus or the Prospectus shall
mean and include the filing of any document under the Exchange Act after
the Effective Date, or the issue date of any Preliminary Prospectus or the
Prospectus, as the case may be, deemed to be incorporated therein by
reference.

"Business Day" shall mean any day other than a Saturday, a Sunday or
a legal holiday or a day on which banking institutions or trust companies
are authorized or obligated by law to close in New York City.

"Commission" shall mean the Securities and Exchange Commission.

"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.

"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.

"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in Section 1(a)(i) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information. Such term shall include the documents incorporated
by reference therein pursuant to Item 12 of Form S-3 which were filed on
or before the issue date of such Preliminary Prospectus.

"Prospectus" shall mean the prospectus relating to the Securities
that is first filed pursuant to Rule 424(b) after the Execution Time or,
if no filing pursuant to Rule 424(b) is required, shall mean the form of
final prospectus relating to the Securities included in

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<PAGE> 28

the Registration Statement at the Effective Date. Such term shall include
the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 which were filed on or before the issue date of such Prospectus.

"Registration Statement" shall mean the registration statement
referred to in Section 1(a)(i) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in
the event any post-effective amendment thereto or any Rule 462(b)
Registration Statement becomes effective prior to the Closing Date, shall
also mean such registration statement as so amended or such Rule 462(b)
Registration Statement, as the case may be. Such term shall include any
Rule 430A Information deemed to be included therein at the Effective Date
as provided by Rule 430A and the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 which are filed on or before the
Effective Date.

"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.

"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.

"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the initial registration statement.

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<PAGE> 29

If the foregoing Underwriting Agreement is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicate hereof, whereupon this letter and your acceptance shall represent a
binding agreement among the Company and the several Underwriters.

Very truly yours,

JAKKS Pacific, Inc.

By:
-----------------------------
Name:
Title:

SELLING STOCKHOLDERS:

--------------------------------
Jack Friedman

--------------------------------
Stephen G. Berman

The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written.

ADVEST, INC.
MORGAN KEEGAN & COMPANY, INC.
SOUTHWEST SECURITIES, INC.
Acting on behalf of themselves and as the
Representatives of the other several
Underwriters named in Schedule II hereof.

By: Advest, Inc.

By:________________________
Name: Brett A. Chamberlain
Title: Director

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<PAGE> 30

SCHEDULE I TO UNDERWRITING AGREEMENT

NUMBER OF NUMBER OF OPTION
SELLING STOCKHOLDERS UNDERWRITTEN SECURITIES SECURITIES TO BE SOLD
TO BE SOLD
<S> <C> <C>
Jack Friedman 192,000 35,000
c/o JAKKS Pacific, Inc.
2271 Pacific Coast Highway
Malibu, CA 90265
Fax No. (310) 456-7099

Stephen G. Berman 58,000 10,000
c/o JAKKS Pacific, Inc.
2271 Pacific Coast Highway
Malibu, CA 90265
Fax No. (310) 456-7099

TOTAL.............. 250,000 45,000

</TABLE>

<PAGE> 31

SCHEDULE II TO UNDERWRITING AGREEMENT

NUMBER OF UNDERWRITTEN [NUMBER OF OPTION
UNDERWRITERS SECURITIES TO BE PURCHASED SECURITIES TO BE PURCHASED]

<S> <C> <C>
Advest, Inc.

Morgan Keegan & Company, Inc.

Southwest Securities, Inc.

Total 2,350,000 352,500

</TABLE>

<PAGE> 32

EXHIBIT A

Jack Friedman
Stephen Berman
(Names of Selling Stockholders)

CUSTODY AGREEMENT AND POWER OF ATTORNEY
FOR SALE OF COMMON STOCK OF
JAKKS PACIFIC, INC.

Murray L. Skala
As Attorney-in-Fact as provided herein
c/o Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022-1200

Boston Safe and Deposit Company, as Custodian as provided herein

Gentlemen:

The undersigned stockholders (the "Selling Stockholders") of JAKKS
Pacific, Inc., a Delaware corporation (the "Company"), propose to sell shares of
Common Stock, $.001 par value, of the Company ("Common Stock") to certain
underwriters (the "Underwriters") for whom Advest, Inc., Morgan Keegan &
Company, Inc. and Southwest Securities, Inc. will act as the representatives
(the "Representatives"). The shares are being registered for distribution under
a Registration Statement on Form S-3 (the "Registration Statement") for
distribution by the Underwriters to the public at a price and on terms to be
hereafter determined. It is understood that at this time there is no commitment
on the part of the Underwriters to purchase any shares of Common Stock and no
assurance that an offering of Common Stock will take place. The shares of Common
Stock which the undersigned propose to sell to the Underwriters pursuant to the
Underwriting Agreement (hereinafter defined) are referred to herein as the
"Securities".

1. Appointment and Powers of Attorney-in-Fact.

A. Each of the undersigned hereby irrevocably constitutes and appoints
Murray L. Skala (the "Attorney-in-Fact") as his agent and attorney-in-fact, with
full power of substitution with respect to all matters arising in connection
with the public offering and sale by the undersigned of the Securities,
including, but not limited to, the power and authority on behalf of the
undersigned to do or cause to be done any of the following things:

(i) negotiate, determine and agree upon (a) the price at which the
Securities will be initially offered to the public by the Underwriters pursuant
to the Underwriting Agreement, (b) the underwriting discount with respect to the
Securities, and (c) the price at which the

<PAGE> 33

Securities will be sold to the Underwriters by the Selling Stockholders pursuant
to the Underwriting Agreement;

(ii) execute and deliver on behalf of the undersigned an
Underwriting Agreement (the "Underwriting Agreement"), substantially in the form
of the draft dated April ___, 1999, delivered to the undersigned herewith,
receipt of which is acknowledged, but with such insertions, changes (including a
change in the number of shares of Common Stock to be sold by the undersigned),
additions or deletions as the Attorney-in-Fact, acting in his sole discretion,
shall approve, which approval shall be conclusively evidenced by the execution
and delivery of the Underwriting Agreement by an Attorney-in-Fact, including the
making of all representations and agreements provided in the Underwriting
Agreement to be made by, and the exercise of all authority thereunder vested in,
the undersigned;

(iii) sell, assign, transfer and deliver the Securities to the
Underwriters pursuant to the Underwriting Agreement and deliver to the
Underwriters certificates for the Securities so sold;

(iv) endorse (in blank or otherwise) on behalf of the undersigned
the certificate or certificates for the Securities to be sold by the undersigned
pursuant to the Underwriting Agreement or to execute and deliver a stock
power(s) with respect to such certificates;

(v) take any and all steps deemed necessary or desirable by the
Attorney-in-Fact in connection with the registration of the Securities under the
Securities Act of 1933, as amended (the "Securities Act" ), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and under the securities
or "blue sky" laws of various states and jurisdictions, including, without
limitation, the giving or making of such undertakings, representations and
agreements and the taking of such other steps as the Attorney-in-Fact may deem
necessary or advisable;

(vi) instruct the Company and the Custodian, as hereinafter defined,
on all matters pertaining to the sale of the Securities and delivery of
certificates therefor;

(vii) make any assurances, communications and reports (including in
the form of a signed certificate pursuant to Section 6(f) of the Underwriting
Agreement) for and on behalf of the undersigned to the Underwriters, which may
be necessary or advisable for facilitating the sale of the Securities, or to
appropriate state or governmental authorities, which may be necessary or
advisable for effecting the registration of the Securities under the state
securities or blue sky laws;

(viii) provide, in accordance with the Underwriting Agreement, for
the payment of any expenses of the offering and sale of the Common Stock covered
by the Registration Statement to be paid by the Selling Stockholders;

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<PAGE> 34

(ix) exercise any power conferred upon, and to take any action
authorized to be taken by, the undersigned pursuant to the Underwriting
Agreement, in the sole discretion of the Attorney-in-Fact; and

(x) otherwise take all actions and do all things necessary or
proper, required, contemplated or deemed advisable or desirable by the
Attorney-in-Fact in his discretion, including the execution and delivery of any
documents, and generally act for and in the name of the undersigned with respect
to the sale of the Securities to the Underwriters and the offering of the
Securities by the Underwriters as fully as could the undersigned if then
personally present and acting.

B. Power to Act. The Attorney-in-Fact may act alone in exercising the
rights and powers conferred on him by this Custody Agreement and Power of
Attorney (the "Agreement"). The Attorney-in-Fact is hereby empowered to
determine, individually, in his sole and absolute discretion, the time or times
when, the purposes for which, and the manner in which, any power herein
conferred upon him shall be exercised.

C. Reliance. The Custodian, the Underwriters, the Company and all other
persons dealing with the Attorney-in-Fact as such may rely and act upon any
writing believed in good faith to be signed by the Attorney-in-Fact.

D. Compensation. The Attorney-in-Fact shall not receive any compensation
for his services rendered hereunder, except that he shall be entitled to cause
the Custodian to pay, from the proceeds payable to the undersigned, each of the
undersigned's proportionate share of any out-of-pocket expenses incurred under
this Agreement.

2. Appointment of Custodian; Deposit of Securities.

A. Deposit of Certificates. In connection with and to facilitate the sale
of the Securities to the Underwriters, each of the undersigned hereby appoints
Boston Safe and Deposit Company as custodian (the "Custodian") and herewith
deposits with the Custodian one or more certificates for Common Stock that in
the aggregate represent not less than the total number of Securities to be sold
by him to the Underwriters, which number is set forth on Schedule I hereto. Each
such certificate so deposited on the date hereof is in negotiable and proper
deliverable form, endorsed in blank with the signature of the undersigned or the
Attorney-in-Fact thereon guaranteed by a commercial bank or trust company in the
United States or by a member firm of the Nasdaq National Market, or is
accompanied by a duly executed stock power or powers in blank, bearing the
signature of the undersigned or the Attorney-in-Fact so guaranteed. The
Custodian is hereby authorized and directed, subject to the instructions of the
Attorney-in-Fact, (a) to hold in custody the certificate or certificates
deposited herewith, (b) to deliver or to authorize the Company's transfer agent
to deliver the certificate or certificates deposited hereunder (or replacement
certificate(s) for the Securities) to or at the direction of the
Attorney-in-Fact in accordance with the terms of the Underwriting Agreement and
(c) to return or cause the Company's transfer agent to return to the

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<PAGE> 35

undersigned new certificate(s) for the shares of Common Stock represented by any
certificate deposited hereunder which are not sold pursuant to the Underwriting
Agreement.

B. Retention of Rights of Ownership. Until the Securities have been
delivered to the Underwriters against payment therefor in accordance with the
Underwriting Agreement, the undersigned shall retain all rights of ownership
with respect to the Securities deposited hereunder, including the right to vote
and to receive all dividends and payment thereon, except the right to retain
custody of or dispose of such Securities, which right is subject to this
Agreement, lock-up agreements between each of the undersigned and Advest, Inc.
and the Underwriting Agreement.

C. Compensation. The Custodian shall be entitled to customary compensation
for the services to be rendered hereunder as set forth in Schedule II attached
hereto. Such compensation shall be paid to the Custodian by the Company.

3. Sale of Securities; Remitting Net Proceeds.

A. Delivery of Securities upon Payment. The Attorney-in-Fact is hereby
authorized and directed to deliver or cause the Custodian or the Company's
transfer agent to deliver certificates for the Securities to the
Representatives, as provided in the Underwriting Agreement, against delivery to
the Attorney-in-Fact for the account of the undersigned of the purchase price of
the Securities, at the time and in the funds specified in the Underwriting
Agreement. The Attorney-in-Fact is authorized, on behalf of the undersigned, to
accept and acknowledge receipt of the payment of the purchase price for the
Securities and shall promptly deposit such proceeds with the Custodian. After
reserving an amount of such proceeds for fees and expenses as provided below,
the Custodian shall promptly remit to the undersigned their respective,
proportionate shares of the proceeds.

B. Retention of Fees and Expenses. Before any proceeds of the sale of the
Securities are remitted to the undersigned, the Attorney-in-Fact is authorized
and empowered to direct the Custodian to reserve from the proceeds an amount
determined by the Attorney-in-Fact to be sufficient to pay all expenses of the
Selling Stockholders, which amount shall be allocated between the undersigned
according to their respective, proportionate shares of the proceeds. The Selling
Stockholders' expenses shall include those items, if any, of expense of the
offering and sale of the Common Stock to be borne by them as provided in the
Underwriting Agreement. The Custodian is authorized to pay such expenses from
the amount reserved for that purpose pursuant to the written direction of the
Attorney-in-Fact. After payment of expenses from this reserve, the Custodian
will remit to the undersigned their respective, proportionate shares of any
balance. To the extent expenses exceed the amount reserved, the Selling
Stockholders shall remain liable for their respective, proportionate shares of
such expenses.

4. Representations, Warranties and Agreements. Each of the undersigned
represents and warrants to, and agrees with each other, the Company, the
Attorney-in-Fact, the Custodian and the Underwriters as follows:

-4-

<PAGE> 36

A. Authority. Each of the undersigned has full legal right, power and
authority to enter into and perform this Agreement and the Underwriting
Agreement and to sell, transfer, assign and deliver the Securities to be sold by
him pursuant to the Underwriting Agreement, free and clear of all liens,
encumbrances, equities and claims whatsoever. If either of the undersigned is
acting as a fiduciary, officer, partner, or agent, he is enclosing with this
Agreement certified copies of the appropriate instruments pursuant to which the
undersigned is authorized to act hereunder.

B. Bring-down of Representations, Warranties and Covenants. Each of the
undersigned has reviewed the representations and warranties to be made by the
undersigned as a Selling Stockholder contained in the Underwriting Agreement,
and hereby represents, warrants and covenants that each of such representations
and warranties is true and correct as of the date hereof and, except as the
undersigned shall have notified the Attorney-in-Fact and Advest, Inc. pursuant
to paragraph F of the attached instructions, will be true and correct at all
times from the date hereof through and including the time of the closing of the
sale of the Securities to the Underwriters. Each of the undersigned will
promptly notify the Attorney-in-Fact of any development that would make any such
representation or warranty untrue.

C. Absence of Changes. Each of the undersigned has reviewed the
Registration Statement, including the preliminary prospectus included therein,
and (i) the undersigned have no knowledge of any material adverse information
with regard to the current and prospective operations of the Company or the
Subsidiaries (as defined in the Underwriting Agreement) except as disclosed in
such preliminary prospectus, (ii) the information contained in such preliminary
prospectus with respect to the undersigned is true and correct, and (iii) to the
best of the knowledge and belief of the undersigned, such preliminary prospectus
does not contain any misstatement of a material fact or omit to state any
material fact.

D. Non-affiliation. Neither of the undersigned is directly or indirectly
an affiliate of or associated with any member of the National Association of
Securities Dealers, Inc.

E. Lock-up. The undersigned will not sell, offer to sell, contract to sell
or otherwise dispose of any shares of Common Stock (or any securities
convertible into or exercisable or exchangeable for shares of Common Stock)
except in accordance with the terms of the Lock-Up Agreement referred to in
Section 5(b)(i) of the Underwriting Agreement.

F. Indemnification. Upon execution and delivery of the Underwriting
Agreement by the Attorney-in-Fact on behalf of each of the undersigned, each of
the undersigned agrees to indemnify and hold harmless the Underwriters, the
Company, each of its directors and each of its officers who signs the
Registration Statement, and each person, if any, who controls any Underwriter or
the Company, and to contribute to amounts paid as a result of losses, claims,
damages, liabilities and expenses, as provided in Section 8 of the Underwriting
Agreement.

G. Agreement to be Bound. Upon execution and delivery of the Underwriting
Agreement by each of the undersigned or the Attorney-in-Fact on behalf of him,
each of the

-5-

<PAGE> 37

undersigned agrees to be bound by and to perform each of the covenants and
agreements made by each of the undersigned as a Selling Stockholder in the
Underwriting Agreement.

H. Additional Information. Each of the undersigned agrees to deliver to
the Attorney-in-Fact such documentation as the Attorney-in-Fact, the Company,
the other Selling Stockholder or the Underwriters or any of their respective
counsel may reasonably request in order to effectuate any of the provisions
hereof or of the Underwriting Agreement, all of the foregoing to be in form and
substance satisfactory in all respects to the requesting party.

The foregoing representations, warranties and agreements are made for the
benefit of, and may be relied upon by, each of the undersigned with respect to
the other Selling Stockholder, the Attorney-in-Fact, the Company, the Custodian,
the Underwriters and their respective representatives, agents and counsel and
are in addition to, and not in limitation of, the representations, warranties
and agreements of the Selling Stockholders in the Underwriting Agreement.

5. Irrevocability of Instruments; Termination of this Agreement.

A. Irrevocability. This Agreement, the deposit of the Securities pursuant
hereto and all authority hereby conferred, is granted, made and conferred
subject to and in consideration of (i) the interests of the Attorney-in-Fact,
the Underwriters and the Company for the purpose of completing the transactions
contemplated hereunder and by the Underwriting Agreement and (ii) the completion
of the registration of Common Stock pursuant to the Registration Statement and
the other acts of the above-mentioned parties from the date hereof to and
including the execution and delivery of the Underwriting Agreement in
anticipation of the sale of Common Stock, including the Securities, to the
Underwriters. The Attorney-in-Fact is hereby further vested with an estate,
right, title and interest in and to the Securities deposited herewith for the
purpose of irrevocably empowering and securing to him authority sufficient to
consummate said transactions. Accordingly, this Agreement shall be irrevocable
prior to the Closing Date (as defined in the Underwriting Agreement), and shall
remain in full force and effect until that date. The undersigned further agree
that this Agreement shall not be terminated by operation of law or upon the
occurrence of any event whatsoever, including the death, disability or
incompetence of either or both of the undersigned. If any event referred to in
the preceding sentence shall occur, whether with or without notice thereof to
the Attorney-in-Fact, the Custodian, any of the Underwriters or any other
person, the Attorney-in-Fact and the Custodian nevertheless shall be authorized
and empowered to deliver and deal with the Securities deposited under this
Agreement by the undersigned in accordance with the terms and provisions of the
Underwriting Agreement and this Agreement as if such event had not occurred.

B. Termination. If the sale of the Securities contemplated by this
Agreement is not completed by the 60th day after the date of the Prospectus (as
defined in the Underwriting Agreement), this Agreement shall terminate (without
affecting any lawful action of the Attorney-in-Fact or the Custodian prior to
such termination or the agreement of the undersigned to indemnify the
Attorney-in-Fact and the Custodian), and the Attorney-in-Fact shall cause the

-6-

<PAGE> 38

Custodian to return to the undersigned all certificates for the Securities
deposited hereunder, but only after having received payment of each of the
undersigned's proportionate part of any expenses to be paid or borne by the
Selling Stockholders. The undersigned hereby covenant with the Attorney-in-Fact
and with each other that if for any reason the sale of the Securities
contemplated hereby shall not be consummated, each of the undersigned shall pay
his proportionate share of all expenses payable by the Selling Stockholders
hereunder or under the Underwriting Agreement.

6. Liability and Indemnification of the Attorney-in-Fact and Custodian. The
Attorney-in-Fact and the Custodian assume no responsibility or liability to the
undersigned or to any other person, other than to deal with the Securities, the
proceeds from the sale of the Securities and any other shares of Common Stock
deposited with the Custodian pursuant to the terms of this Agreement in
accordance with the provisions hereof. The duties and obligations of the
Custodian shall be limited to and determined solely by the express provisions of
this Agreement, and no implied duties or obligations shall be read into this
Agreement against the Custodian. The undersigned hereby agree to indemnify and
hold harmless the Attorney-in-Fact and the Custodian, and their respective
officers, agents, successors, assigns and personal representatives with respect
to any act or omission of or by any of them in good faith in connection with any
and all matters within the scope of this Agreement or the Underwriting
Agreement; provided, however, that the Attorney-in-Fact and the Custodian may be
liable to the undersigned for any such act or omission to the extent
attributable to gross negligence or fraud. The Custodian may consult with
counsel of its own choice and shall have full and complete authorization and
protection for any action taken or suffered by it hereunder in good faith and in
accordance with the opinion of such counsel.

7. Interpretation.

A. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements of each of the undersigned contained
herein and in the Underwriting Agreement shall survive the sale and delivery of
the Securities and the termination of this Agreement.

B. Governing Law. The validity, enforceability, interpretation and
construction of this Agreement shall be determined in accordance with the laws
of the State of New York applicable to contracts made and to be performed within
the State of New York, and this Agreement shall inure to the benefit of, and be
binding upon, the undersigned and the undersigned's respective heirs, executors,
administrators, successors and assigns, as the case may be.

C. Validity. Wherever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any such provision shall be prohibited by or invalid under applicable
law, it shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.

-7-

<PAGE> 39

D. Usage. The use of the masculine gender in this Agreement includes the
feminine and neuter, and the use of the singular includes the plural, wherever
appropriate.

E. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered, shall constitute an
original and all together shall constitute one instrument.

F. Binding Effect. This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by and against, the respective successors, heirs,
personal representatives and assigns of the parties hereto.

-8-

<PAGE> 40

IN WITNESS WHEREOF, the undersigned have executed this Custody Agreement
and Power of Attorney this ____ day of ______________, 1999.

Selling Stockholder: Jack Friedman Guaranteed by (2):

By:(1) ______________________________ By:______________________________
Name: Name:
Title: Title:

Name and address to which notices and funds shall be sent:

Name: _______________________________

Address: _____________________________
(Street)
_____________________________

(City) (State) (Zip)

ACCEPTED by the Attorney-in-Fact as of ACCEPTED by the Custodian as of the date
the date above set forth: above set forth:

By: _______________________________ Boston Safe and Deposit Company
Name: Murray L. Skala
By: _______________________________
Name:
Title:

SEE THE ATTACHED INSTRUCTIONS

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

(1) NOTE: Please sign exactly as your name appears on your stock certificate(s).

(2) NOTE: The signature must be guaranteed by a commercial bank or trust company
in the United States or by a member firm of the Nasdaq National
Market.

-9-
<PAGE> 41

Selling Stockholder: Stephen G. Berman Guaranteed by (2): ______________

By:(1)____________________________ By:______________________________
Name: Name:
Title: Title:

Name and address to which notices and
funds shall be sent:

Name: _______________________________

Address: _____________________________
(Street)
_____________________________

(City) (State) (Zip)

ACCEPTED by the Attorney-in-Fact as of ACCEPTED by the Custodian as of the date
the date above set forth: above set forth:

By: _______________________________ Boston Safe and Deposit Company
Name: Murray L. Skala
By: _______________________________
Name:
Title:

SEE THE ATTACHED INSTRUCTIONS

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

(1) NOTE: Please sign exactly as your name appears on your stock certificate(s).

(2) NOTE: The signature must be guaranteed by a commercial bank or trust company
in the United States or by a member firm of the Nasdaq National
Market.

-10-
<PAGE> 42

INSTRUCTIONS
(For completing the Custody Agreement and Power of Attorney)

A. You have been sent five copies of the Custody Agreement and Power of
Attorney (the "Agreement"). Please complete and return four copies of the
Agreement and stock certificate(s) as set forth in paragraph D below. A fully
executed copy of the Agreement will be returned to you; a fully executed copy of
the Agreement and your stock certificate(s) will be retained by the Custodian;
and a fully executed copy of the Agreement will be delivered to each
Attorney-in-Fact and to Counsel for the Underwriters.

B. Complete Schedule I attached hereto.

C. Each copy of the Agreement and each stock certificate or stock power
deposited hereunder must be executed by you (or by the Attorney-in-Fact) with
your signature on the Agreement and the stock certificate(s) or the accompanying
stock power guaranteed by a commercial bank or trust company in the United
States or any broker which is a member firm of the Nasdaq National Market. The
stock certificate(s) or stock power and the Agreement should be signed exactly
as your name appears on your stock certificate(s).

D. Endorsed stock certificate(s) or stock certificate(s) with stock powers
attached along with all four executed copies of the completed Agreement should
be promptly returned by hand delivery or by certified mail appropriately insured
to the Custodian at:

Boston Safe and Deposit Company

Attn: Keith Jackson

If sent through the mail, it is recommended that the certificate(s) not be
endorsed, but an executed stock power be sent under separate cover from the
certificate(s).

E. If any certificate that you submit represents a greater number of
Securities than the aggregate number of Securities which you agree to sell
pursuant to the Underwriting Agreement (including any additional shares which
you agree to sell), the Custodian will cause to be delivered to you in due
course, but not earlier than ten days after the final closing for the purchase
of Securities by the Underwriters pursuant to the exercise by the Underwriters
of the over-allotment option described in the Underwriting Agreement, a
certificate for the excess number of shares.

F. For purposes of discharging your obligations under Section 6(f) of the
Underwriting Agreement and Section 4B of the Agreement please contact Brett A.
Chamberlain of Advest, Inc. by phone at (212) 584-4274 or by facsimile at (212)
584-4292 if any information or representation included in the foregoing
Agreement or the Underwriting Agreement should change, or if you become aware of
any new information, at any time prior to termination of the period applicable
to you referred to in Section 6(b)(ii) of the Underwriting Agreement.

-11-
<PAGE> 43

Jack Friedman
(Name of Selling Stockholder)

SCHEDULE I

Certificate(s) for Securities of Common Stock of JAKKS Pacific, Inc.
deposited under
Custody Agreement and Power of Attorney

Number of Shares Number of Shares of
Certificate of Common Stock Common Stock from
Number Represented by Certificate this Certificate to Be Sold*

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

Total:____________ Total: 192,000

*If fewer than all shares represented by a certificate are to be sold, indicate
below, if desired for income tax purposes, the date of purchase or purchase
price of the particular shares to be sold.

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<PAGE> 44

Stephen Berman
(Name of Selling Stockholder)

SCHEDULE I

Certificate(s) for Securities of Common Stock of JAKKS Pacific, Inc.
deposited under
Custody Agreement and Power of Attorney

Number of Shares Number of Shares of
Certificate of Common Stock Common Stock from
Number Represented by Certificate this Certificate to Be Sold*

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

Total:____________ Total: 58,000

*If fewer than all shares represented by a certificate are to be sold, indicate
below, if desired for income tax purposes, the date of purchase or purchase
price of the particular shares to be sold.

-13-
<PAGE> 45

SCHEDULE II

Fees of Custodian

[TO COME]

-14-
<PAGE> 46

EXHIBIT B

JAKKS PACIFIC, INC.

LOCK-UP AGREEMENT

March 19, 1999

Advest, Inc.
Morgan Keegan & Company
Southwest Securities, Inc.
As Representatives of the Underwriters
One Rockefeller Plaza
New York, New York 10020

Ladies and Gentlemen:

The undersigned understands that you, as Representatives of the
underwriters (the "Underwriters"), propose to enter into an underwriting
agreement (the "Underwriting Agreement") with JAKKS Pacific, Inc. (the
"Company") providing for the public offering (the "Public Offering") by the
Underwriters, including yourself, of common stock of the Company, par value
$.001 (the "Common Stock"), pursuant to the Company's Registration Statement on
Form S-3 (the "Registration Statement").

In consideration of the Underwriters' agreement to purchase and make the
Public Offering of the Common Stock, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned hereby
agrees, for a period commencing on the date of the final prospectus relating to
the Public Offering and continuing for 180 days thereafter (but not to extend
beyond December 15, 1999) (the "Lock-Up Period"), not to offer, sell, offer to
sell, solicit an offer to buy, contract to sell, encumber, distribute, pledge,
grant any option for the sale of, or otherwise transfer or dispose of, directly
or indirectly, in one or a series of transactions (collectively, a
"Disposition"), any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible or exercisable into or
exchangeable for shares of Common Stock (collectively, "Securities"), now owned
or hereafter acquired by the undersigned or with respect to which the
undersigned has acquired or hereafter acquires the power of disposition, without
the prior written consent of Advest, Inc., other than (i) any shares of Common
Stock to be sold pursuant to the Underwriting Agreement and (ii) shares of
Common Stock disposed of as bona fide gifts approved by Advest, Inc. Prior to
the expiration of the Lock-Up Period, the undersigned agrees that it will not
announce or disclose any intention to do anything after the expiration of such
period which the undersigned is prohibited, as provided in the preceding
sentence, from doing during the Lock-Up Period. In addition, for the benefit of
the Company and the Underwriters, the undersigned hereby (i) waives during the
Lock-up Period any right it may have to cause the Company to register pursuant
to the Securities Act of 1933, as amended, shares of Common Stock now owned or
hereafter acquired or received by the undersigned as a result of the Public
Offering and (ii) during the Lock-Up Period, agrees not to

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<PAGE> 47

exercise any such registration rights and further agrees that the Company shall
not be obligated to register any shares in violation of the Underwriting
Agreement.

The undersigned acknowledges and agrees that the restrictions above are
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities (or the economic equivalent thereof)
during the Lock-Up Period even if such Securities would be disposed of by
someone other than the undersigned. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based marked basket or index) that
includes, relates to or derives any significant part of its value from the
Securities.

The undersigned hereby also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
the Securities held by the undersigned except in compliance with this Lock-Up
Agreement.

It is understood that, if the Underwriting Agreement is not executed, or
if the Underwriting Agreement shall terminate or be terminated prior to payment
for and delivery of the Common Stock the subject thereof, this Lock-Up Agreement
shall automatically terminate and be of no further force or effect.

This Lock-Up Agreement shall be governed by and construed in accordance
with the laws of the State of New York (without giving effect to its conflict of
laws provisions).

Very truly yours,

-----------------------------
Name:
Address:

-16-

<PAGE> 1

EXHIBIT 4.1.2

CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE
OF INCORPORATION OF JAKKS PACIFIC, INC.

The undersigned hereby certifies as follow:

1. The Board of Directors of JAKKS Pacific, Inc., a Delaware corporation
(the "Company"), has adopted resolutions to increase the number of shares of
Preferred Stock that the Company shall have authority to issue to 1,000,000
shares, and, for this purpose, authorizing that the Company's Restated
Certificate of Incorporation be amended by deleting Article FOURTH thereof in
its entirety and by inserting in lieu thereof the following:

FOURTH: The total number of shares of stock which the Company shall
have authority to issue is 26,000,000 shares, of which 25,000,000 shares
shall comprise a single class of common stock, par value $.001 per
share, and 1,000,000 shares shall comprise a single class of preferred
stock, par value $.001 per share (the "Preferred Stock"). The shares of
Preferred Stock may be issued from time to time, when and as authorized
by the Company's Board of Directors in one or more series, upon such
terms and conditions as the Company's Board of Directors shall approve.
The Company's Board of Directors is expressly authorized to provide for
the issuance of all or any shares of the Preferred Stock in one or more
classes or series, and, subject to the provisions hereof, to fix by
resolution or resolutions the designations, powers, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations and restrictions, of each such class or
series.

2. The foregoing amendment was duly adopted in accordance with Section 242
of the General Corporation Law of Delaware.

IN WITNESS WHEREOF, the undersigned has duly executed this Certificate on
this 12th day of February, 1999.

/s/ Stephen G. Berman
----------------------------------
Stephen G. Berman, President

<PAGE> 1

EXHIBIT 23.1

CONSENT OF PANNELL KERR FORSTER

We hereby consent to the inclusion in the Registration Statement on Form
S-3 of JAKKS Pacific, Inc. of our report dated February 22, 1999, except for
note 18, for which the date is March 1, 1999, on our audits of the consolidated
financial statements of JAKKS Pacific, Inc. as of December 31, 1997 and 1998,
and for each of the three years in the period ended December 31, 1998.

We also hereby consent to the reference to our firm as "Experts" in the
Registration Statement.

/s/ PANNELL KERR FORSTER
--------------------------------------
Pannell Kerr Forster
Certified Public Accountants
A Professional Corporation

Los Angeles, California

April 26, 1999