FUNDEX GAMES LTD, SB-2/A, 1996-11-18

FUNDEX GAMES LTD
SB-2/A, 1996-11-18
GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1996

REGISTRATION NO. 333-13633

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1 TO

FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------

FUNDEX GAMES, LTD
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

<TABLE>
<S> <C> <C>
NEVADA 3944 35-1846155
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>

3750 W. 16TH STREET
INDIANAPOLIS, INDIANA 46222
TELEPHONE: (317) 263-9869
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)
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MR. CARL E. (CHIP) VOIGT, IV, PRESIDENT
FUNDEX GAMES, LTD.
3750 W. 16TH STREET
INDIANAPOLIS, INDIANA 46222
TELEPHONE: (317) 263-9869
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------

PLEASE ADDRESS A COPY OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
STEVEN SCHWARTZ, ESQ. ALAN I. ANNEX, ESQ.
MITCHELL S. ROTH, ESQ. ROBERT S. MATLIN, ESQ.
MUCH SHELIST FREED DENENBERG AMENT BELL & RUBENSTEIN, P.C. CAMHY KARLINSKY & STEIN LLP
200 N. LASALLE STREET, SUITE 2100 1740 BROADWAY, 16TH FLOOR
CHICAGO, ILLINOIS 60601-1095 NEW YORK, NEW YORK 10019
TELEPHONE: (312) 346-3100 TELEPHONE: (212) 977-6600
FAX: (312) 621-1750 FAX: (212) 977-8389
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes
effective.

If any of the Securities being registered in this form are to be offered, on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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(b)
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. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Units Consisting of:
Common Stock, $.001 par value(2)...................... 1,150,000 shares $8.00(1) $9,200,000(1) $2,787.88
Redeemable Common Stock Purchase Warrants............. 1,150,000 warrants $.10 $115,000 $34.85
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Common Stock issuable on exercise of Redeemable Common
Stock Purchase Warrants(3).......................... 1,150,000 shares $12.00 $13,800,000 $4,181.82
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Representative's Warrants(4).......................... 100,000 warrants $.0001 $10 $--
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Common Stock Underlying Representative's
Warrants(4)......................................... 100,000 shares $9.60 $960,000 $290.91
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Redeemable Common Stock Purchase Warrants issuable
upon Exercise of Representative's Warrant(4)........ 100,000 warrants $.12 $12,000 $3.64
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Common Stock issuable upon exercise of Warrants
issuable upon exercise of Representative's
Warrants(6)......................................... 100,000 shares $12.00 $1,200,000 $363.64
- ----------------------------------------------------------------------------------------------------------------------------------
Total................................................. $25,287,010 $7,662.74(7)
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</TABLE>

(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 150,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(3) Reserved for issuance upon exercise of Redeemable Common Stock Purchase
Warrants.
(4) To be issued to the Representative of the Underwriters at the Closing.
(5) Reserved for Issuance upon exercise of Representative's Warrants.
(6) Pursuant to Rule 416, this Registration Statement also relates to an
indeterminate number of additional shares as may be issued as a result of
anti-dilution provisions of the Representative's Warrants and the Redeemable
Common Stock Purchases Warrants.

(7) 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 AS AMENDED, OR UNTIL THIS 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

FUNDEX GAMES, LTD.

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION CAPTION LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside
Front Cover Page of Prospectus........... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors....... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution................................... Risk Factors; Dilution
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Outside Front Cover Page, Inside Front
Cover Page; Underwriting
9. Legal Proceedings.......................... Business
10. Directors, Executive Officers, Promoters
and Control Persons...................... Management; Certain Relationships and
Related Transactions
11. Security Ownership of Certain Beneficial
Owners and Management.................... Principal Stockholders; Management
12. Description of Securities.................. Prospectus Summary; Description of
Securities
13. Interest of Named Experts and Counsel...... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Underwriting; Management -- Limitation on
Officers' and Director's Liability and
Indemnification
15. Organization Within Last 5 Years........... Business; Certain Relationships and Related
Transactions
16. Description of Business.................... Prospectus Summary; Business
17. Management's Discussion and Analysis or
Plan of Operation........................ Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18. Description of Property.................... Business -- Properties
19. Certain Relationships and Related
Transactions............................. Certain Relationships and Related
Transactions
20. Market for Common Equity and Related
Stockholder Matters...................... Risk Factors; Dividend Policy;
Capitalization; Description of Securities;
Shares Eligible for Future Sale
21. Executive Compensation..................... Management
22. Financial Statements....................... Prospectus Summary; Capitalization;
Selected Financial Information; Financial
Statements
23. Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure............................... Not Applicable
</TABLE>
<PAGE> 3

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED NOVEMBER 18, 1996

FUNDEX GAMES, LTD.
1,000,000 SHARES OF COMMON STOCK AND
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS

(INITIALLY SHARES OF COMMON STOCK AND WARRANTS MAY ONLY BE PURCHASED TOGETHER ON
THE BASIS OF ONE SHARES OF COMMON STOCK AND ONE WARRANT, BUT WILL TRADE
SEPARATELY IMMEDIATELY AFTER THE OFFERING IS COMPLETED)

Fundex Games, Ltd. (the "COMPANY") hereby offers (the "Offering") 1,000,000
shares of its common stock, $.001 par value (the "COMMON STOCK"), and 1,000,000
Redeemable Common Stock Purchase Warrants (the "WARRANTS"). Upon the completion
of this Offering, the shares of Common Stock and the Warrants offered hereby may
only be purchased together on the basis of one share of Common Stock and one
Warrant, but will trade separately immediately after the Offering. The Common
Stock and the Warrants are sometimes referred to herein as the "Securities."
Each Warrant entitles the registered holder thereof to purchase one share of
Common Stock at an initial exercise price of $ [150% of the initial public
offering price] per share at any time during the period commencing one year from
the date of this Prospectus and terminating five years from the date of this
Prospectus. The Warrant exercise price is subject to adjustment under certain
circumstances. Commencing eighteen months after the date of this Prospectus, the
Company may redeem the Warrants at $.01 per Warrant on 30 days prior written
notice to the Warrant holders if the average closing bid price of the Common
Stock as reported on the Chicago Stock Exchange ("CHX") equals or exceeds
$ [225% of the initial public offering price] per share (subject to
adjustment under certain circumstances) for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the date
of the notice of redemption. See "Description of Securities."

Prior to this Offering, there has been no public market for the Common Stock
and Warrants and there can be no assurance that any such market will develop. It
is anticipated that the initial public offering price of the Common Stock will
be between $7 and $8 per share, and the initial public offering price per
Warrant will be $.10. The initial public offering price has been determined by
negotiation between the Company and the Underwriter and does not necessarily
reflect the Company's assets, book value, performance or other generally
accepted criteria of value. See "Risk Factors" and "Underwriting." The Company
will file an application for quotation of its Common Stock and Warrants on the
Chicago Stock Exchange under the symbols "FNX" and "FNXW," respectively.

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

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM THE OFFERING PRICE.
SEE "RISK FACTORS" AND "DILUTION."

---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------

<TABLE>
<CAPTION>
PRICE UNDERWRITING DISCOUNTS PROCEEDS TO
TO PUBLIC AND COMMISSION(1) COMPANY(2)
------------ ---------------------- ------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Per Warrant..................................... $ $ $
Total(3)........................................ $ $ $
</TABLE>

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

(1) Excludes additional compensation to be received by National Securities
Corporation, the representative (the "Representative") of the several
underwriters (the "UNDERWRITERS") in the form of (i) a nonaccountable
expense allowance equal to 3% of the gross proceeds to the Company and, (ii)
sale to the Representative for nominal consideration of warrants (the
"REPRESENTATIVE'S WARRANTS") to purchase up to 100,000 shares of Common
Stock and 100,000 Warrants. In addition, the Company has agreed to indemnify
the Underwriter against certain liabilities. See "Underwriting."

(2) Before deducting expenses of the Offering payable by the Company estimated
at $ which includes the nonaccountable expense allowance described in
Note 1 above.

(3) The Company has granted to the Underwriters an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 150,000 additional
shares of Common Stock and/or 150,000 Warrants on the same terms as set
forth above, solely to cover overallotments, if any. If such option is
exercised in full, the total Price to Public will be $ , the total
Underwriting Discounts and Commissions will be $ and the Proceeds to
the Company will be $ . See "Underwriting."

The shares of Common Stock and the Warrants are being offered by the
Underwriter on a firm commitment basis, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters, and subject to approval of
certain legal matters by counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the Offering and to
reject any order in whole or in part. It is expected that delivery of the
certificates for the Securities will be made against payment therefor at the
offices of National Securities Corporation, 1001 Fourth Avenue, Seattle,
Washington, on or about , 1996.

NATIONAL SECURITIES CORPORATION

The date of this Prospectus is November 18, 1996

<PAGE> 4

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

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

Prior to this Offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). After completion of this Offering, the Company will be subject to certain
informational requirements of the Exchange Act and in accordance therewith will
file reports, proxy statements and other information with the Securities and
Exchange Commission (the "COMMISSION"). The Company intends to furnish its
stockholders with annual reports containing audited financial statements and
with such other periodic reports as the Company may from time to time deem
appropriate or as may be required by law.

<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Except as otherwise indicated, the information in
this Prospectus (i) assumes no exercise of the Underwriter's overallotment
option, (ii) does not give effect to the issuance of up to 1,000,000 shares of
Common Stock upon exercise of the Warrants; (iii) does not give effect to the
issuance of up to 100,000 shares of Common Stock and 100,000 Warrants upon
exercise of the Representative's Warrants; (iv) does not give effect to the
issuance of up to 100,000 shares of Common Stock upon exercise of Warrants
underlying the Representative's Warrants; (v) does not give effect to the
issuance of 300,000 additional shares of Common Stock reserved for issuance upon
exercise of additional stock options that may be granted under the Company's
1996 Employee Stock Option Plan and 1996 Stock Option Plan for Non-Employee
Directors; (vi) reflects the reincorporation of the Company from Indiana to
Nevada (the "REINCORPORATION") in August, 1996; and (vii) reflects the 1,000 for
1 stock split of the Common Stock effected in August, 1996 in connection with
the Reincorporation, and the 1.15 for 1 stock split of the Common Stock effected
in August, 1996.

THE COMPANY

Fundex Games, Ltd. (the "COMPANY"), develops, markets and sells games and
toys nationwide through discount retailers, specialty toy retailers, toy
wholesalers, drug and grocery retailers and certain catalog and specialty
accounts. The Company's principal products include card games, children's board
games, skill and action games, family games, puzzles and spring and summer toys.
The Company's largest selling item is a card game called "Phase 10." Phase 10 is
the second best selling card game in the United States with sales in excess of
1,000,000 units per year. The Company's products are manufactured to the
Company's specifications by manufacturers based in the United States, Taiwan,
Indonesia and China.

The Company has recently acquired certain rights to use characters and
properties from The Big Comfy Couch(TM), which it will incorporate into games,
puzzles and an inflatable couch. The Big Comfy Couch(TM) is a popular children's
show broadcast on public broadcasting stations nationwide. The Company intends
to seek additional licenses for widely-recognized children's characters.

The toy industry is a large and growing business. Based on published data
by Toy Manufactures of America, Inc., toy sales in the United States increased
to approximately $20.0 billion in 1995 from approximately $18.7 billion in 1994,
representing a 7% increase without adjustment for inflation. Certain industry
segments such as traditional card and board games have experienced strong
growth. During the last five years, consolidation of toy and game manufacturers
has created an opportunity for those few remaining independent companies such as
the Company to increase their market share for several reasons. These reasons
include: (i) similar competing products were consolidated creating less
competition within product lines; (ii) the consolidated companies have high
minimum sales requirements and have withdrawn products previously sold by their
constituent companies prior to consolidation, thereby reducing competition for
certain of the Company's products; (iii) the consolidated companies cannot
review or accept all good toy and game ideas submitted by inventors, enabling
the Company to be in position to acquire new toys and games from inventors
regularly; and (iv) retailers are reluctant to allocate all of their shelf space
to only one or two suppliers, making additional shelf space available to the
Company.

The Company intends to expand its business through (a) acquiring and
developing new products; (b) moving into international markets; (c) increasing
advertising and promotion; (d) acquiring licenses for the use of highly
recognized properties and characters in connection with games and toy products;
and (e) diversifying its product line.

The Company's goal is to continue to take advantage of the consolidation in
the games industry to strengthen its position in the marketplace and to continue
offering innovative toy and game products in existing and new product
categories, providing both a high retail margin to retailers and high perceived
value to consumers. The Company intends to achieve this goal through (i)
management's extensive experience in

2
<PAGE> 6

the industry; (ii) acquisition of established products and product lines and
extension of its existing product lines; and (iii) increased advertising.

The Company was originally incorporated in Indiana in 1991 and
reincorporated in Nevada in 1996.

The Company's principal executive offices are located at 3750 W. 16th
Street, Indianapolis, Indiana 46222. Its telephone number is (317) 263-9869.

THE OFFERING

<TABLE>
<S> <C>
SECURITIES OFFERED................. 1,000,000 shares of Common Stock and 1,000,000 Warrants.
Until completion of the Offering, the Shares of Common
Stock and the Warrants offered hereby may only be
purchased together on the basis of one share of Common
Stock and one Warrant, but will trade separately
immediately after the Offering.
Exercise Price of Warrants......... Each Warrant entitles the holder to purchase, at any
time over a four year period commencing one year after
the date of this Prospectus, one share of Common Stock
at a price of $ [150% of the initial public
offering price] per share. The Warrant exercise price is
subject to adjustment under certain circumstances. See
"Description of Company's Securities."
Redemption of Warrants............. Commencing eighteen (18) months after the date of this
Prospectus, the Warrants are subject to redemption by
the Company at $.01 per Warrant on 30 days prior written
notice, if the average closing price of the Common Stock
equals or exceeds $ [225% of the initial public
offering price] per share for any 20 trading days within
a period of 30 consecutive trading days ending on the
fifth trading day prior to the date of notice of
redemption.
Securities Outstanding:
Before the Offering.............. 1,225,000 shares of Common Stock
After the Offering............... 2,225,000 shares of Common Stock and 1,000,000 Warrants
Use of Proceeds.................... For general corporate purposes, including (i) working
capital, (ii) increased advertising, (iii) the
development of new products and product lines, (iv)
repayment of short-term borrowings, and (iv) possible
acquisitions.
Proposed CHX Trading Symbols....... Common Stock -- FNX
Warrants -- FNXW
</TABLE>

3
<PAGE> 7

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

<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS ENDED
DECEMBER 31, AUGUST 31,(1)
---------------------- ----------------------
1994 1995 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales......................................... $3,802 $4,601 $2,634 $3,519
Gross Margin...................................... 1,327 1,382 831 1,125
Operating Income.................................. 359 339 263 315
Net Income -- Pro forma(2)........................ 218 205 161 195
Net Income per Share.............................. .18 .17 .13 .16
Weighted average number of shares outstanding..... 1,225,000 1,225,000 1,225,000 1,225,000
</TABLE>

<TABLE>
<CAPTION>
AUGUST 31, 1996
--------------------------
DECEMBER 31, 1995 ACTUAL AS ADJUSTED(3)
----------------- ------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ 540 $ 543 $6,325
Total assets...................................... 1,234 2,850 8,279
Current Liabilities............................... 590 1,695 1,342
Long term debt.................................... -- -- --
Stockholders' equity.............................. 644 1,140 6,922
</TABLE>

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(1) Historically, the Company's net sales have been the highest in the fourth
quarter of each year. The Company's business is seasonal, with sales
increasing significantly during the Christmas holiday season. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Fluctuations and Seasonality."

(2) Pro forma net income gives effect to income taxes which would have been
required if the Company had been taxed as a "C" Corporation.

(3) As adjusted to reflect the sale of 1,000,000 shares of Common Stock and
1,000,000 Warrants offered hereby and application of the net proceeds
therefrom, based upon an assumed initial public offering price of $7 per
share of Common Stock and $.10 per Warrant. See "Use of Proceeds."

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<PAGE> 8

RISK FACTORS

An investment in the Securities offered hereby involves a high degree of
risk. In analyzing this Offering and in evaluating the Company and its business,
prospective investors should carefully consider the following risk factors, in
addition to the other information included in this Prospectus.

CUSTOMER CONCENTRATION

The five largest customers of the Company accounted for approximately 53.3%
and 50.7% of net sales in 1994 and 1995, respectively. The loss of any of these
major customers or a substantial reduction in orders from such customers would
have a material adverse effect on the results of the Company's operations. The
Company does not have any contracts with any of its customers and none are
expected to be signed. See "Business -- Marketing, Distribution and Sales."

PRODUCT OBSOLESCENCE

Consumer preferences can change rapidly, and the Company's success will
depend on its ability to successfully introduce new products. The success of new
products depends on a variety of factors including product selection, timely
completion of product design, timely and efficient implementation of
manufacturing and assembly processes and effective sales and marketing. Because
new product commitments must be made well in advance of sales, new product
decisions must anticipate future market demand. There is no assurance that the
Company will be successful in introducing new products.

COMPETITION

The Company competes with many other companies in the design and
development of new toys and games, the procurement of licenses, and the
marketing and distribution of its products. Many of the Company's competitors
have greater financial resources, more sophisticated sales forces, larger
facilities for product development and greater name recognition than the
Company. Many of the competitors do more consumer advertising than the Company
and have products more competitively priced than the Company's products. There
can be no assurance that the Company will be able to compete successfully or
that it will have the ability to expand its operations as it is contemplating.

GAME/TOY INDUSTRY CONDITIONS -- ONE SIGNIFICANT PRODUCT LINE

Although, during recent years, the game and toy industry has experienced
consistent growth overall, the performance of individual game and toy companies
has not been predictable. The variability of individual company results can be
attributed in part to the reliance by a number of companies on the success or
failure of a single product line or product category or the introduction of
promotional products. The Company derived 49.9% and 44.8% of net sales in 1994
and 1995, respectively, from its Phase 10 product line. The success of the
Company could be adversely affected if it cannot maintain the marketability of
the Phase 10 line, and there can be no assurance that the Company will be able
to do so. See "Business -- Industry Background."

UNAVAILABILITY AND FLUCTUATING COSTS OF RAW MATERIALS

The raw materials primarily used in the Company's products are paper and
plastic. The Company believes that there are adequate supplies of these
materials readily available to the Company and its contract manufacturers.
However, as the price of these materials fluctuates, the Company's manufacturing
costs will fluctuate accordingly. When material costs rise during the year, the
Company is often unable to increase the sales prices of its products to account
for the increased costs until the beginning of a calendar year, if at all.

DEPENDENCE ON KEY PERSONNEL

The Company's business depends to a large extent on the abilities,
experience and continued participation of key employees, including Carl E.
(Chip) Voigt, IV, President, who has primary responsibility for product
development and advertising and Carl E. (Pete) Voigt, III, Executive Vice
President, who has primary

5
<PAGE> 9

responsibility for sales and marketing. The loss of services of either of the
Voigts would have a material adverse effect upon the Company's business if
suitable replacements could not be promptly found. No assurances can be given
that the Company would be able to hire adequate replacements. The Company
presently carries key-man life insurance in the amount of $500,000 on Carl E.
(Chip) Voigt, IV and in the amount of $500,000 on Carl E. (Pete) Voigt, III. The
Company is the beneficiary of such policies, however the Company intends to
pledge such policies to NBD Bank, NA, in connection with its line of credit. The
success of the Company will depend in part on the ability of the Company to
attract and retain qualified operating, marketing, research and development and
financial personnel. Competition for qualified personnel is often intense, and
no assurance can be given as to the ability of the Company to attract and retain
qualified personnel. See "Management."

DEPENDENCE ON LICENSES

The Company obtains many of its products through licenses from inventors.
The Company competes with numerous other companies for such licenses, many of
which have substantially greater financial and other resources than those of the
Company. In addition, one of the Company's new product lines is dependent upon
certain proprietary character licenses. The Company intends to seek other
character licenses to expand its business. Many of the Company's licensing
agreements are non-exclusive and limited in duration. Competition for licenses
is intense, and there can be no assurance that the Company will be successful in
renewing its present licenses or obtaining new licenses. See "Business
Products."

DEPENDENCE ON CONTRACT MANUFACTURERS

The Company does not have manufacturing facilities. All of the Company's
products are manufactured by contract manufacturers, many of which are located
in Indonesia, China and Taiwan. The Company does not have long term contracts
with any of its manufacturers. Foreign manufacturing is subject to a number of
risks, including transportation delays and interruptions, political and economic
disruptions, the impositions of tariffs and import and export controls,
restrictions on the transfer of funds, work stoppages and changes in
governmental policies. While the Company has not to date experienced any
material adverse effects due to such risks, there can be no assurance that such
event will not occur in the future with the result of possible increases in
costs and delays of, or interferences with, product deliveries, resulting in
losses of revenues and goodwill. See "Business -- Manufacturing."

GOVERNMENT REGULATION

The Company's operations are subject to various laws including the Federal
Consumer Product Safety Act. The commission charged with enforcement of these
laws has the authority to exclude from the market items that are found to be
hazardous.

SEASONAL AND QUARTERLY FLUCTUATIONS

Sales of games and puzzles are seasonal, with the majority of retail sales
occurring during the period from September to December. Shipments of games and
puzzles are greatest during the third and fourth quarters, and inventory levels
are at their highest during such time period. The Company generates a
substantial portion of its revenues during the third and fourth quarters and
therefore operating results may fluctuate significantly among quarters.
Operating results may fluctuate as a result of a number of other factors,
including the timing of shipments of new products, activities of competitors of
the Company, including advertising, and the emergence of new companies and
products to the market. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Fluctuations and Seasonality."

PROPRIETARY PROTECTION

The Company seeks to protect its products through tradenames, trademarks,
copyrights and licenses. The Company also relies on proprietary protections of
its licensors. Despite the efforts of the Company and its licensors to protect
and maintain their proprietary rights, there can be no assurance that the
Company or its licensors will be successful in doing so or that the Company's
competitors will not independently develop or

6
<PAGE> 10

patent products that are substantially equivalent or superior to the Company's
products. In addition, the laws of certain foreign jurisdictions do not protect
intellectual property to the same extent as the United States. Many of the
Company's products have little or no proprietary protection. Although the
Company has applied for protection of its name and logo with the U.S. Patent and
Trademark Office, there can be no assurance that the Company will be granted
such protection.

BROAD DISCRETION AS TO USE OF PROCEEDS

The net proceeds of this Offering are primarily allocated to working
capital, product development, advertising and other corporate purposes.
Accordingly, management will have broad discretion with respect to the
expenditure of a substantial portion of the net proceeds of this Offering.
Purchasers of the Securities offered hereby will be entrusting their funds to
the Company's management, upon whose judgment the investors must depend, with
only limited information concerning management's specific intentions. See "Use
of Proceeds." The Company may use a portion of the proceeds of this Offering in
connection with joint ventures, acquisitions or other arrangements which
management deems necessary for the development of the Company's business
activities.

CONTINUING CONTROL BY MANAGEMENT

Upon the completion of the Offering, the current employee-stockholders of
the Company will own approximately 52% of the Company's outstanding shares of
Common Stock. Accordingly, such stockholders will be able to exert significant
influence in the election of the Board of Directors. It is likely that investors
in this Offering will have little or no influence on the direction of the
Company.

ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock, and to determine the rights, preferences and
privileges of those shares without any further vote of the stockholders. The
rights of the holders of the Common Stock may be adversely affected by the
rights of the holders of the Preferred Stock. The Company is also subject to the
anti-takeover provisions of the Nevada Revised Statutes which restrict certain
business combinations with interested stockholders unless certain conditions are
met. By delaying and deterring unsolicited takeover attempts, these provisions
could adversely affect prevailing market prices for the Company's Common Stock.

POTENTIAL ADVERSE EFFECT OF REPRESENTATIVE'S WARRANTS

At the consummation of the Offering, the Company will sell to the
Representative, for nominal consideration, Representative's Warrants entitling
the Representative to purchase up to 100,000 shares of Common Stock and 100,000
Warrants. The Representative's Warrants will be exercisable for a period of four
years commencing one year after the effective date of the Offering at an
exercise price of $ per share and $ per Warrant. The Warrants
obtained upon exercise of the Representative's Warrants will be exercisable for
a period of four years commencing one year after the effective date of this
Offering, at an exercise price of $ [150% of the initial public offering
price] per share. The holders of the Representative's Warrants will have, at
nominal cost, the opportunity to profit from a rise in the market price of the
Securities without assuming the risk of ownership, with resulting dilution in
the interests of other security holders. The Company's ability to obtain
additional capital might be adversely affected during the time that the
Representative's Warrants remain unexercised. Moreover, the Representative may
exercise the Representative's Warrants at a time when the Company would, in all
likelihood, be able to obtain any needed capital through a new offering of its
securities on terms more favorable than those provided by the Representative's
Warrants. See "Description of Securities -- Warrants" and "Underwriting".

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS

Commencing eighteen months after the date of the this Prospectus, the
Warrants are subject to redemption by the Company at $.01 per Warrant on 30 days
prior written notice to the Warrant holders if the

7
<PAGE> 11

average closing bid price of the Common Stock equals or exceeds $ [225%
of the initial public offering price] per share for any 20 trading days within a
period of 30 consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption. If the Warrants are redeemed, holders of
the Warrants will lose their rights to exercise the Warrants after the
expiration of the 30 day notice of redemption. Upon receipt of the notice of
redemption, holders will be required to: (i) exercise the Warrants and pay the
exercise price at a time when they may be unable or unwilling to do so; (ii)
sell the Warrants at the current market price, if any; or (iii) accept the
redemption price which is likely to be substantially less than the market value
of the Warrants at the time of redemption. See "Description of Securities --
Warrants".

POTENTIAL ADVERSE AFFECTS OF SUBSTANTIAL SHARES OF COMMON STOCK RESERVED

The Company has reserved a total of 1,650,000 shares of Common Stock for
issuance as follows: (i) 1,150,000 shares for issuance upon exercise of the
Warrants; (ii) 100,000 shares for issuance upon exercise of the Representative's
Warrants; (iii) 100,000 shares for issuance upon exercise of the Warrants
issuable upon exercise of the Representative's Warrants and (iv) 300,000 shares
for issuance pursuant to the 1996 Employee Stock Option Plan and the 1996 Stock
Option Plan for Non-Employee Directors (collectively the "1996 Stock Option
Plan"). As of the date of this Offering, the Company has not issued any options.
The reservation of the Common Stock and the existence of the Warrants,
Representative's Warrants and options may adversely affect the Company's ability
to consummate future equity financing. In addition, the holders of the Warrants,
Representative's Warrants and options may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company.

LACK OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this Offering, there has been no public market for the Company's
securities. Although the Company has applied to have the Common Stock included
on CHX there can be no assurance that an active market in any such securities
will develop or, if such a market develops, that it will be sustained. The
initial public offering price for the shares of Common Stock was determined by
negotiations between the Company and the Representative, and should not be
regarded as indicative of any future market price of the Common Stock. See
"Underwriting." The stock market has, from time to time, experienced significant
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. The market price of the Common Stock may be affected by
many factors, including new products introduced by the Company or its
competitors, disputes regarding proprietary rights, new regulations affecting
foreign manufacturing and periodic fluctuations in the Company's financial
results. In addition, the fact that the Company has two stockholders with
significant holdings may affect the public market for the Common Stock.

DILUTION

A purchaser in this Offering will experience immediate substantial price
dilution from the initial public offering price per share of Common Stock and
Warrants. See "Dilution." The immediate dilution to purchasers of the Securities
offered hereby is $4.10 or 59% per share of Common Stock. Additional dilution is
likely to occur as a result of the exercise of the Representative's Warrants to
purchase up to 100,000 shares of Common Stock, and may occur upon the exercise
of the Warrants and options that are outstanding or to be issued under the 1996
Stock Option Plan.

SHARES ELIGIBLE FOR FUTURE SALE

All of the presently issued and outstanding shares of Common Stock are
"restricted securities" as that term is defined under Rule 144 promulgated under
the Securities Act of 1933, as amended (the "ACT"). In the event that a public
market develops for the Company's Common Stock, the Company is unable to predict
the effect that sales made under Rule 144 or other sales may have on the then
prevailing market price of the Common Stock. See "Description of Capital Stock
- -- Shares Eligible for Future Sale." The current shareholders have agreed,
pursuant to lock-up agreements ("the LOCK-UP AGREEMENTS"), that they will not,
without the prior written consent of the Representative, sell or otherwise
dispose of their shares for a period of 13 months after the date of this
Prospectus. At such time, 1,150,000 shares will become eligible for

8
<PAGE> 12

sale, subject to the volume limitations of Rule 144. The Company intends,
immediately after this Offering, to register 300,000 shares of Common Stock
reserved for issuance under the 1996 Stock Option Plan. The Company is also
authorized to issue preferred stock without stockholder approval, with such
designations, preferences and other rights, qualifications and restrictions as
determined by the Board of Directors.

ARBITRARY DETERMINATION OF OFFERING PRICE

The initial public offering price of the Securities and the exercise price
and terms of the Warrants have been determined arbitrarily by negotiations
between the Company and the Representative. Factors considered in such
negotiations, in addition to prevailing market conditions, included the history
and prospects for the industry in which the Company competes, an assessment of
the Company's management, the prospects of the Company, the Company's capital
structure and other relevant factors. Therefore, the initial public offering
price of the Securities and the exercise price and terms of the Warrants do not
necessarily bear any relationship to established valuation criteria and may not
be indicative of prices that may prevail at any time from time to time in the
public market for the Securities. See "Underwriting".

CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE THE
WARRANTS

The Warrants are exercisable only if a current prospectus relating to the
Common Stock underlying such Warrants is then in effect, and only if such Common
Stock is qualified for sale or exempt from qualification under applicable state
securities laws of the state in which a holder of the Warrants resides. Although
the Company has undertaken to maintain the effectiveness of a current prospectus
covering the Common Stock underlying the Warrants, there can be no assurance
that the Company will able to do so. The Warrants may be deprived of any value
if a current prospectus covering the Common Stock issuable upon exercise of the
Warrants is not effective, or if such Common Stock is not qualified or exempt
from qualification in the states in which the holders of Warrants reside.

The Common Stock and the Warrants are separately transferable immediately
upon issuance. In the event that an investor purchases the Warrants in the
secondary market or moves to a jurisdiction in which the shares of Common Stock
underlying the Warrants are not registered or qualified during the period that
the Warrants are exercisable, the Company will be unable to issue shares to such
investor desiring to exercise the Warrants, unless and until the shares are
qualified for sale in the jurisdiction in which such investor resides, or an
exemption from such qualification exists in such jurisdiction. If the shares are
not qualified for sale in the jurisdiction in which a Warrant holder resides,
such holder would have no choice but to attempt to sell the Warrants in a
jurisdiction where such sale is permissible or allow them to expire unexercised.
See "Description of Securities -- Warrants."

RISK OF LOW-PRICED STOCKS

If the Company's securities are delisted from CHX because they no longer
met the qualifications, they will be subject to the "penny stock" rules of Rule
15c2-6 of the Exchange Act, which imposes additional sales practice requirements
on broker-dealers which sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net worths in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser or have received the
purchaser's written consent to the transaction prior to sale. Consequently, the
rule may affect the ability or willingness of broker-dealers to sell the
Company's Common Stock and may affect the ability of purchasers in this Offering
to sell any of the Common Stock acquired hereby in the secondary market.

The Commission has adopted regulations which define a "penny stock" to be
any equity that has a market price (as therein defined) less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule, prepared by the Commission, relating to the penny stock
market. Disclosure of commissions payable to both the broker-dealer

9
<PAGE> 13

and the registered representative and current quotations for the securities is
also required. Finally, monthly statements are required to be sent to
stockholders disclosing recent price information for the penny stock held in
each stockholder's account and information on the limited market in penny
stocks.

The foregoing penny stock restrictions will generally not apply to the
Company's Common Stock if the Common Stock is listed on CHX. If the Company's
Common Stock were subject to the rules on penny stocks, the market liquidity for
the Common Stock could be severely adversely affected.

NO COMMON STOCK DIVIDENDS ANTICIPATED

The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company anticipates that any earnings generated
from the Company's operations will be retained to fund operations of the
Company.

FORWARD LOOKING STATEMENTS

This Prospectus contains forward-looking statements and information that
are based on management's beliefs and assumptions, as well as information
currently available to management. When used in this document, the words
"anticipate," "estimate," "expect," and similar expressions are intended to
identify forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or expected. Among the key factors that may have a
direct bearing on the Company's operating results are fluctuations in the
economy, the degree and nature of competition, the Company's ability to
successfully expand its product line, and its ability to obtain products and
licenses.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock and the 1,000,000 Warrants offered hereby, after deduction of
underwriting discounts and commissions and Offering expenses, are estimated to
be approximately $5,782,000 at an assumed public offering price of $7.00 per
share of Common Stock and $.10 per Warrant. The Company expects to use
approximately $1,500,000 of the net proceeds for increased consumer advertising,
including new television advertisements. Approximately $300,000 of the net
proceeds will be used for capital expenditures, including a new computer system,
forklift, and warehouse racking. The Company expects that between $500,000 and
$1,000,000 will be used for acquisition of new products and product licenses,
and that approximately $500,000 will be used to develop new products, including
costs of injection molds, design, models and packaging.

The Company also intends to repay $540,000 of short term debt from the net
proceeds of the Offering, including the repayment of the $500,000 Bridge Loan.
The terms of the notes issued in connection with the Bridge Loan provide for
interest at the rate of ten percent (10%) per year. The principal is payable,
together with interest, in two equal installments on July 31, 1997 and July 31,
1998. However, the entire principal balance and any accrued interest is
accelerated and due upon the completion of this Offering. The proceeds of the
Bridge Loan were used for expenses incurred in connection with this Offering and
for working capital. The sum of $62,334 plus accrued interest will be paid to
Sheldon Drobny, a director of the Company, in repayment of his portion of the
Bridge Loan, and the sum of $124,666 plus accrued interest will be paid to two
Affiliates of Sheldon Drobny in repayment of their portion of the Bridge Loan.

The Company intends to use the remaining net proceeds for working capital
requirements. In the ordinary course of its business, the Company regularly
reviews acquisition opportunities in the game and toy industry. Accordingly, a
portion of the proceeds of the Offering may be used to finance possible
strategic acquisitions of other game companies, toy companies or product lines,
although the Company has no agreements, understandings or commitments in respect
of any specific acquisition candidates, nor is the Company engaged in
negotiations with respect to any acquisition.

10
<PAGE> 14

The foregoing represents the Company's best estimate of the use of the net
proceeds to be received in this Offering based on current planning and business
conditions. The Company reserves the right to change the use of the proceeds
when and if market conditions or unexpected changes in operating conditions or
results occur. The amounts actually expended for each use may vary significantly
depending upon a number of factors, including future sales growth and the amount
of cash generated by the Company's operations.

Pending application of the net proceeds, the Company intends to invest the
net proceeds principally in short-term, interest bearing obligations or U.S.
Government obligations, money market funds or other short term securities. The
proceeds, if any, from the exercise of the Underwriter's over-allotment option
are expected to be used for working capital and general corporate purposes.

DILUTION

As of August 31, 1996, the net tangible book value of the Company's Common
Stock was $671,198, or $.55 per share. "Net tangible book value" per share of
Common Stock represents the tangible assets (total assets less intangible
assets) reduced by total liabilities divided by the number of outstanding shares
of Common Stock. After giving effect to the sale of the 1,000,000 shares offered
hereby at the assumed initial public offering price of $7.00 per share and the
receipt of estimated net proceeds to the Company of $5,782,000 (after deducting
underwriting commissions and discounts and estimated expenses of this Offering)
the adjusted net tangible book value of the Company's Common Stock at August 31,
1996 would have been $6,452,698 or $2.90 per share. This represents an increase
in the net tangible book value of $2.35 per share to the existing stockholders
and an immediate dilution to new investors in this Offering of $4.10 per share
(59%).

The following table illustrates the dilution, in terms of net tangible book
value, that will be experienced by purchasers of the Common Stock offered
hereby, and the increase in terms of net tangible book value that will be
experienced by the existing stockholders:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................................... $7.00
Net tangible book value per share at August 31, 1996............................ $ .55
Increase in net tangible book value per share attributable to new investors..... $2.35
Pro forma net tangible book value per share after Offering............................ $2.90
Dilution per share to new investors................................................... $4.10
</TABLE>

The following table sets forth a comparison of the respective numbers of
shares of Common Stock purchased or to be purchased from the Company and total
cash consideration paid or to be paid to the Company by the existing holders of
the Common Stock and investors purchasing 1,000,000 shares of Common Stock in
this Offering. The calculation in this table assumes an initial public offering
price of $7.00 per share before deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company.

<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED --------------------------------------
-------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 1,225,000 55% $ 456,125 6.1% $ .37
New investors............................. 1,000,000 45% $7,000,000 93.9% $7.00
--------- ---- ---------- -----
Total................................ 2,225,000 100% $7,456,125 100.0%
========= ==== ========== =====
</TABLE>

DIVIDEND POLICY

The Company does not intend to pay dividends on its Common Stock in the
foreseeable future. The Company presently expects to retain its earnings to
finance the development and expansion of its business. The payment by the
Company of dividends, if any, on its Common Stock in the future is subject to
the discretion of the Board of Directors and will depend on the Company's
earnings, financial condition, capital requirements and other relevant factors.
See "Description of Securities."

11
<PAGE> 15

CAPITALIZATION

The following table sets forth the capitalization of the Company at August
31, 1996, and as adjusted to reflect the sale of the 1,000,000 shares of Common
Stock and 1,000,000 Warrants offered hereby at an assumed offering price of
$7.00 per share of Common Stock and $0.10 per Warrant and the application of the
net proceeds therefrom as set forth under "Use of Proceeds." The information set
forth below should be read in conjunction with the Financial Statement and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

<TABLE>
<CAPTION>
AUGUST 31, 1996
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................................... -- --
Stockholders' equity:
Preferred Stock, par value $1.00 per share, 1,000,000 shares authorized,
none issued or outstanding............................................. -- --
Common Stock, $.001 par value, 8,000,000 shares authorized;
1,225,000 shares issued and outstanding;
2,225,000 shares issued and outstanding as adjusted(2)................. $ 1 $ 2
Additional paid-in capital............................................... 1,139 6,920
Retained earnings........................................................ -- --
------ ------
Total stockholders' equity.......................................... 1,140 6,922
------ ------
Total Capitalization.............................................. $1,140 $ 6,922
====== ======
</TABLE>

12
<PAGE> 16

SELECTED FINANCIAL DATA

The selected financial data set forth below with respect to the Company's
statement of income for the years ended December 31, 1994 and 1995 and balance
sheet data at December 31, 1995 are derived from the audited financial
statements of the Company included elsewhere in this Prospectus. An opinion with
respect to these statements has been provided by BDO Seidman, LLP, independent
certified public accountants. The selected financial data as of August 31, 1996
and for the eight (8) month periods ended August 31, 1995 and 1996 have been
derived from the Company's unaudited financial statements which in the opinion
of the Company reflect all adjustment of a normal, recurring nature which the
Company considers necessary for a fair presentation of the results for such
periods. The results of operations for the eight (8) months ended August 31,
1996 are not necessarily indicative of the results of operations to be expected
for any future quarter or the fiscal year ending December 31, 1996. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes related thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS ENDED
DECEMBER 31, AUGUST 31,(1)
---------------------- ----------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net Sales......................................... 3,802 4,601 2,634 3,519
Cost of Sales..................................... 2,475 3,218 1,803 2,394
Gross Margin...................................... 1,327 1,382 831 1,125
Selling, general and administrative expenses...... 968 1,044 567 810
Operating Income.................................. 359 339 263 315
Net Income -- Pro forma(2)........................ 218 205 161 195
Net Income per common share....................... .18 .17 .13 .16
Weighted average number of shares outstanding..... 1,225,000 1,225,000 1,225,000 1,225,000
</TABLE>

<TABLE>
<CAPTION>
AUGUST 31, 1996
------------------------
DECEMBER 31, 1995 ACTUAL AS ADJUSTED(3)
----------------- ------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Working capital......................................... 540 543 6,325
Total assets............................................ 1,234 2,850 8,279
Current liabilities..................................... 590 1,695 1,342
Long term debt.......................................... -- -- --
Stockholders' equity.................................... 644 1,140 6,922
</TABLE>

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

(2) Pro forma net income gives effect to income taxes which would have been
required if the Company had been taxed as a "C" Corporation.

(3) As adjusted to reflect the sale of 1,000,000 shares of Common Stock and
1,000,000 Warrants offered hereby and application of the net proceeds
therefrom, based upon an assumed initial public Offering price of $7.00 per
share of Common Stock and $.10 per Warrant. See "Use of Proceeds."

13
<PAGE> 17

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

OVERVIEW

The Company is engaged in the business of developing, manufacturing,
marketing and selling of games and toys that feature a broad market appeal. The
Company's products are distributed through mass market and major toy retailers
throughout the United States. In addition to its best selling "Phase 10" card
game, the Company has entered into license agreements for the character license
"The Big Comfy Couch" to be used on games, puzzles and inflatable toys for 1996.

In order to minimize operating costs, the Company relies on new products
from the game and toy inventing community, as well as new products from licensed
properties. This strategy allows the Company to avoid the expenses of
maintaining in-house product research and development staffs. The Company pays
royalties of 2% to 10% of net sales to the inventor or licenser.

Net sales of the Company consist of gross sales less the amount of
discounts, credits and certain promotional or other allowances. The Company's
net sales for the years ended December 31, 1994 and 1995 were $3,802,001 and
$4,600,819, respectively.

Cost of sales consists primarily of manufacturing costs of the Company's
products. The Company's gross margin, which is net sales less cost of sales, was
34.9% for the year ended December 31, 1994, 30% for the year ended December 31,
1995 and 32% for the eight months ended August 31, 1996. The Company's gross
margin decreased during 1995 primarily as a result of an unexpected increase in
material cost. However, the gross margin during the first eight months of 1996
exceeded the 1995 gross margin. The Company expects a further increase in gross
margin because: (i) raw material prices have stabilized; and (ii) the Company's
product mix has shifted to more proprietary products which usually produce
higher gross margins.

Selling, general and administrative expenses consist primarily of sales
commissions, marketing expenses, advertising expenses and administrative
expenses, which includes salaries, rent and other general office expenses. The
Company anticipates that selling, general and administrative expenses will
increase in 1996 and 1997 as a result of the hiring of a chief financial
officer, increased advertising, increased expenses related to the increase in
net sales, and expenses incurred in connection with this Offering. However,
because the Company expects increased net sales in 1996 and 1997, the Company
believes that such expenses should remain relatively consistent as a percentage
of net sales with the 1995 level.

RESULTS OF OPERATION

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

<TABLE>
<CAPTION>
YEAR ENDED 8 MONTHS ENDED
DECEMBER 31, AUGUST 31,
--------------- ---------------
1994 1995 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net Sales................................................... 100.0% 100.0% 100.0% 100.0%
Cost of Sales............................................... 65.1 70.0 68.5 68.0
----- ----- ----- -----
Gross Margin................................................ 34.9 30.0 31.5 32.0
Selling, General and Administrative Expenses................ 25.5 22.7 21.5 23.0
----- ----- ----- -----
Income from operations...................................... 9.4 7.3 10.0 9.0
Other Income................................................ 0.3 0.2 0.3 0.4
Interest Expense............................................ (0.3) (0.2) (0.3) (0.2)
Tax Benefit................................................. -- -- -- 0.5
----- ----- ----- -----
Net Income.................................................. 9.4% 7.3% 10.0% 9.7%
===== ===== ===== =====
</TABLE>

14
<PAGE> 18

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 AND THE YEAR ENDED DECEMBER 31,
1995

Net Sales -- Net sales for the year ended December 31, 1995 were $4,600,819
compared with $3,802,001 for the same period in 1994, an increase of $798,818 or
21.0%. This increase was primarily attributed to the increased sales of new
products introduced in 1995. Net sales also benefited from increased sales of
the Company's Phase 10 product line.

Cost of Sales -- Cost of sales for the year ended December 31, 1995 was
$3,218,443 compared to $2,474,809 for the same period in 1994, an increase of
$743,634 or 30%. The increase reflects a proportional increase attributable to
the increase in net sales in 1995, plus an unexpected increase in raw material
costs.

Gross Margin -- Gross margin for the year ended December 31, 1995 increased
by $55,184 or 4.2% over gross margin for the prior year. The Company's gross
margin as a percentage of sales was 30.0% for 1995, compared with 34.9% in 1994.
The decrease primarily occurred due to a rapid increase in material prices,
primarily in paper, paperboard and corrugated paper products. The Company was
unable to increase its selling prices to reflect the increased material prices
as most pricing is locked in for the year. The Company did raise prices at the
end of 1995 for 1996 orders.

Selling, General and Administrative Expenses -- Selling, general and
administrative expenses for the year ended December 31, 1995 were $1,043,673 or
22.7% of net sales, compared with $967,840 or 25.5% of net sales for the year
ended December 31, 1994. The decrease as a percentage of net sales was primarily
attributed to higher net sales without a significant increase in expenses
because of the relatively fixed nature of the Company's general and
administrative expenses. The dollar increase in selling, general and
administrative expenses is attributable to the increase in sales commissions and
royalties paid to inventors, which are directly related to increased sales.
Increased staffing and additional warehouse facilities to handle the increased
sales were also required.

Net Income -- Net income for the year ended December 31, 1995 was $337,185
compared to $358,923 for the same period in 1994, a decrease of $21,738 or 6.4%.

COMPARISON OF THE EIGHT MONTHS ENDED AUGUST 31, 1995 AND THE EIGHT MONTHS ENDED
AUGUST 31, 1996

Net Sales -- Net sales for the eight months ended August 31, 1996 were
$3,518,701 compared with $2,633,721 for the eight months ended August 31, 1995,
an increase of $884,980 or 33.6%. This increase was attributable to sales of new
products introduced in 1996, increased sales of products introduced in 1995 and
continued increased sales of the Phase 10 product line.

Cost of Sales -- Cost of sales for the eight months ended August 31, 1996
was $2,394,024 compared to $1,803,156 for the same period in 1995, an increase
of $590,868 or 32.8%. This reflects a proportional increase attributable to the
increase in net sales for the eight months ended August 31, 1996.

Gross Margin -- Gross Margin increased $294,112 or 35.4% for the eight
month period ended August 31, 1996, as compared to the same period for 1995.
Gross margin as a percentage of net sales was 32.0% for the eight months of
1996, compared to 31.5% for the same period in 1995. The increase in gross
margin is primarily due to the price increase instituted in late 1995 for 1996
purchases and the relatively stable material prices.

Selling, General and Administrative Expenses -- Selling, general and
administrative expenses in the first eight months of 1996 were $810,140 or 23.0%
of net sales compared with $567,496 or 21.5% of net sales in the same period of
1995. This increase was primarily attributable to higher sales commissions and
royalties to inventors, which are directly related to the higher sales, and
increases in staffing to meet the higher sales demand.

Net Income -- Net income for the eight months ended August 31, 1996 was
$339,803 compared to $264,502 for the same period in 1995, an increase of 28.5%.

15
<PAGE> 19

QUARTERLY FLUCTUATIONS AND SEASONALITY

The following table sets forth net sales and operating results by quarter
for 1994 and 1995. This unaudited information has been prepared on the same
basis as the annual information presented elsewhere in the Prospectus and in
management's opinion, reflects all adjustments necessary for a fair presentation
of the information presented.

<TABLE>
<CAPTION>
1994 1995
-------------------------------------------- ----------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- --------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales......... 512,295 988,213 1,068,302 1,233,191 663,060 1,157,276 1,351,756 1,428,727
Gross
Margin...... 164,502 317,125 386,086 459,479 246,449 301,725 425,890 408,312
Net Income.... 7,298 112,136 124,950 114,539 12,678 87,550 158,490 78,467
</TABLE>

The preceding table highlights the quarterly fluctuations and seasonality
in sales and net income. Historically, the Company experiences significant
fluctuations in operating results and expects this trend to continue in the
future. The Company's business is seasonal because the Christmas holiday season
causes significant sales volume increases in the third and fourth quarters. The
first quarter is typically the least profitable as sales are the lowest and
fixed operating expenses are comparable to such expenses in other quarters. The
first quarter operating results of the Company are consistent with results of
other companies in the toy and game industry. The fourth quarter net income, as
a percentage of sales, has been lower as a result of annual discretionary
bonuses payable in such quarter and obsolete inventory and bad debts expensed in
the fourth quarter.

LIQUIDITY AND CAPITAL RESOURCES

Prior to this Offering, the Company has financed its operations primarily
through loans and paid in capital from stockholders and from operations. At
August 31, 1996, the Company's cash and cash equivalents were $125,751 and its
current ratio was 1.32 to 1.

The Company's capital investments have been primarily for warehouse
equipment, office equipment and furnishings for the office and showroom, and
molds and tooling for use in the manufacture of the Company's products. The
Company has also used capital for cash advances on character licenses and
product licenses.

Net cash provided by operating activities was $344,283 for the year ended
December 31, 1995, primarily due to net income of $337,185. Net cash used in
investing activities in 1995 was $84,179, reflecting certain capital
expenditures, while net cash used in financing activities was $211,800,
reflecting distributions of previously taxed income to the shareholders (from a
time when the Company was an S corporation for income tax purposes).

Net cash used in operating activities for the eight months ended August 31,
1996 was $160,755, primarily due to increases in accounts receivable and
inventories. The increase in accounts receivable was due to increases in overall
sales volume, partly relating to sales for the holiday season. The increase in
inventory corresponds to the increase in sales. Net cash provided by financing
activities during this period was $270,000, reflecting the $313,000 Bridge Loan
outstanding at such date.

In November, 1996, the Company received a Commitment Letter from NBD Bank,
N.A. ("NBD"), committing NBD, subject to certain conditions, to extend to the
Company a $4,000,000 Line of Credit (the "Credit Facility") which includes the
issuance of Commercial Letters of Credit, Stand-By Letters of Credit, and
Bankers Acceptances, not to exceed $2,000,000. The interest rate for borrowing
under the Credit Facility is based on the Company's ratio of total liabilities
over operating income before interest expense, taxes and non-cash expenses (the
"Ratio"). The Company has the option to choose an interest rate at either NBD's
published Prime Rate (plus up to 1/4%) or LIBOR Rate (plus up to 275 basis
points), based upon the size of the Ratio. The Credit Facility limits the
Company's borrowings base to the lesser of $4,000,000 or 80% of eligible
accounts receivable plus 40% of inventory (including raw materials). The maximum
borrowing base with respect to inventory is $750,000. To secure NBD's
outstanding Credit Facility, NBD will take a first perfected security interest
in the Company's accounts receivable and inventory and an assignment of the key

16
<PAGE> 20

man life insurance policies on Carl E. Voigt, III and Carl E. Voigt, IV. The
Credit Facility is contingent upon (i) the completion of this Offering resulting
in gross proceeds of at least $6,000,000; and (ii) NBD's satisfactory completion
of a field audit.

The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds from this Offering, together with
the Credit Facility from NBD Bank, N.A., and cash from operations, will be
sufficient to fund the Company's operations for at least eighteen to twenty-four
months following the consummation of this Offering. See "Use of Proceeds."

EXCHANGE RATES

The Company sells substantially all of its products in U.S. dollars and
pays for substantially all of the manufacturing costs in U.S. dollars. Exchange
rate fluctuations have not had a significant impact on the Company's operating
results.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective for fiscal years beginning after December 15, 1995, Statement of
Financial Standards Number 121, Accounting for the Impairment of Long-Lived
Assets and For Long-Lived Assets to be Disposed of ("Statement 121") was adopted
by the Financial Accounting Standards Board (FASB). The adoption by the Company
of Statement 121 is not expected to have a materially adverse effect on the
Company's financial condition or results of operations.

In December, 1995, FASB issued Statement of Financial Accounting Standards
Number 123, "Accounting for Stock-Based Compensation." This standard encourages
a new method of recognizing stock-based compensation expense using an option
pricing model measurement of the estimated fair value of employee stock options.
Alternatively, companies may choose to retain the current approach set forth in
Accounting Principles Board Opinion Number 25, "Accounting for Stock Issued to
Employees," and provide expanded footnote disclosure as to what the effects of
utilizing the option pricing model measurement would have been. Statement 123 is
effective for fiscal years beginning in 1996. The Company does not plan to use
the option pricing model measurement of Statement 123 and will provide the
required footnote disclosure.

17
<PAGE> 21

BUSINESS

The following discussion contains certain forward-looking statements.
Actual results could differ materially. See "Risk Factors -- Forward Looking
Statements."

GENERAL

The Company develops, markets and distributes a variety of games and toys
for children and adults. The Company's principal products include (i) card
games, puzzles and board games; (ii) skill and action games for children; (iii)
games, puzzles, and toys featuring highly-recognized entertainment properties
and characters licensed by the Company from third parties; and (iv) spring and
summer toys for children. The Company is seeking to expand its business through
(a) the acquisition and development of new products; (b) the acquisition of
additional licenses for the use of highly-recognized properties and characters
in connection with game or toy products; (c) promotion of existing and new
products; (d) continued expansion into international markets; and (e) the
acquisition of other game or toy businesses should the opportunities for such
acquisitions become available.

The Company was originally incorporated in the State of Indiana as Third
Quarter, Inc. In August, 1996, the Company was reincorporated in the State of
Nevada by establishing a new Nevada corporation and merging the Indiana
corporation into the Nevada corporation. In connection with the merger, the name
of the Company was changed to Fundex Games, Ltd. In addition, the Company
accomplished a 1,000 for 1 stock split of the Company's Common Stock effective
as of the date of the merger. The Company effected an additional 1.15 to 1 stock
split in August, 1996. References in the Prospectus to the "Company" includes
the Indiana corporation and the Nevada corporation, unless otherwise specified.

INDUSTRY BACKGROUND

Over the last ten years, U.S. companies have expanded their international
presence and the Company believes that opportunities exist for toy sales and/or
licensing of products to existing companies in the overseas market. The Company
has and will continue to explore this growing market.

PRODUCTS

The Company has a broad and well established line of games and toys and is
developing additional games for children, family and adults. The following is a
description of the Company's major product lines.

Phase 10.

Phase 10 Card Game is an established card game for ages 8 to adult. Phase
10 is currently the number 2 selling card game in the U.S. and the world, with
over 5,000,000 units sold. Phase 10 Card Game and its sister products, Phase 10
Dice, Phase 10 UPSETS and Take Five, comprise the Company's principal product
line. The products retail from $3.99 to $19.99. Phase 10 is sold by a very
broadbase of retailers and is available at

18
<PAGE> 22

over 20,000 retail locations. Card games such as Phase 10 and Mattel's Uno
typically have very long product cycles lasting decades and a very broad
demographic base of players. These games are not normally sensitive to economic
volatility.

The Big Comfy Couch(TM.)

The Company has entered into exclusive license agreements with Hollywood
Ventures Corporation to market games, puzzles and an inflatable couch utilizing
properties and characters associated with the television show "The Big Comfy
Couch(TM)." The Big Comfy Couch(TM) is a children's series which features the
clown Loonette and her doll Molly. The Big Comfy Couch(TM) won the Gemini Award
(Canada's Emmy) for best children's series. The Big Comfy Couch(TM) is aired on
155 public broadcasting stations in the United States, and nationally in Canada
on YTV, Canada's children's broadcaster.

Basic Board Games.

The Company markets a comprehensive line of traditional board games such as
chess and checkers. These products retail in the $2.99 to $9.99 range. Although
this is a large business dominated by two major competitors, the Company has
shown a profit in its first full year of production. The Company expects that
margins will improve in this category as volume increases.

Wooden Games.

The Company markets a line of wooden games such as Chinese checkers, chess
and mancala. The mancala game has been placed with several major customers.
These products retail in the $6.99 to $19.99 range.

Mini Games.

The Company markets a line of small magnetic and wooden games. This product
line has been profitable for several years and is carried by a diverse account
base. These products retail in the $.99 to $6.99 range.

New Products.

The Company introduced several new products in 1996 that it believes will
strengthen and broaden its product mix. The game A to Z is a family parlor game
that retails for $19.99. The A to Z game will be advertised on radio and
promoted with contests and giveaways.

The Company also has introduced its first items in the Children's "Skill
and Action Game" category. The skill and action category targets boys and girls
in the key age group of 6-11 years old. The Disc Shooter Arcade Game utilizes
safe soft foam discs with an action packed target which retails for $19.99. The
Company also introduced the Tug of War game that is anticipated to sell for
$9.99 retail. The retail prices for these items are lower than comparable items
presently on the market.

Other Products.

The Company is developing and plans to market various other games designed
for young children and the family/adult market. The Company is also pursuing
several other licensed character properties for games and puzzles.

PRODUCT DEVELOPMENT AND DESIGN

The Company's products are generally acquired by the Company from others or
developed for the Company by unaffiliated third parties. The Company employs an
individual to review and refine new game and puzzle concepts submitted from
unaffiliated third parties. If the Company accepts and develops a third party's
concept for a new game, it generally pays a royalty to the inventor on games
sold and which were developed from such concept, often with a commitment to
manufacture and sell a minimum number of such items. Royalties paid to the
inventors range from 1% to 6% of the wholesale sales price for each unit sold by
the

19
<PAGE> 23

Company. The Company occasionally pays advance royalties to the inventor on
products where a significant amount of development has been done by the
inventor. The Company believes that utilizing third party inventors gives it a
wide range of available new products and eliminates operating costs associated
with maintaining full time inventors. The Company has a close relationship with
several inventors.

Safety testing of the Company's products are conducted by independent third
party contractors to meet safety regulations imposed by federal and state
governmental agencies. The Company, in conjunction with these contractors,
determines the appropriate warning labels (such as choking hazard and age
restrictions) to be placed on its products.

MARKETING, DISTRIBUTION AND SALES

The Company distributes all its products through its own employees and
independent sales representatives. Purchasers of the Company's products include
retail chain stores, drug chains, super markets, toy specialty stores and
wholesalers. The Company's five largest customers accounted for 50.7% of the
Company's sales during the fiscal year 1995. Other than purchase orders, the
Company does not have written agreements with its customers. Typically, products
are sold to customers on an open account basis, FOB Indianapolis, with payment
terms varying from 30 to 90 days. The Company also sells products to customers
FOB Hong Kong. The Company does not sell products on consignment basis.

The Company employs on a full-time basis a sales and marketing staff of two
people in addition to the President and Executive Vice President who both
participate in sales and marketing. The sales staff make on-site visits to
customers for the purpose of soliciting orders for products. The Company also
markets products at major and regional toy trade shows.

The Company directly, or through its salespersons, takes written orders for
its products from customers and ships the orders from its facility in
Indianapolis. Orders placed on FOB Hong Kong basis are shipped directly from the
manufacturers. Cancellations are generally made in writing and the Company takes
appropriate steps to notify its manufacturers or suppliers of such
cancellations. The Company generally does not accept returns, although
consistent with industry practices, it makes exceptions on a case by case basis.

The Company is a member of Toy Manufacturers of America which, among other
things, provides credit verification services. The Company uses this service in
setting credit terms with its creditors.

LICENSE AGREEMENTS AND INTELLECTUAL PROPERTY

Carl E. Voigt, III and Carl E. Voigt, IV (the "Voigts") obtained the
exclusive rights to manufacture, market and distribute the card game "Phase 10"
(and all enhancements) pursuant to an agreement dated December 18, 1986 among
the Voigts, Kenneth Johnson and K & K International. The agreement is for a term
of ten years, and automatically renews for successive five year terms unless
terminated by the Voigts. The Voigts assigned such rights to the Company with
respect to the United States only effective in 1991, and transferred all foreign
rights to the Company as of August 31, 1996. In connection with the assignment
of foreign rights to the Company, the Voigts assigned to the Company all of
their rights under various sub-license agreements. Pursuant to the sub-license
agreements, certain rights to market and sell Phase 10 products were assigned to
entities with respect to individual territories, including Spain, Italy, Canada,
Sweden, Germany, Australia and New Zealand.

The Company has entered into an exclusive agreement with Hollywood Ventures
Corporation ("HVC") for certain properties and characters associated with The
Big Comfy Couch(TM) for use on board games, paperboard puzzles and wooden
puzzles. The shipment of these products began in the third quarter of 1996.
Under the terms of the license, the Company has the exclusive rights for the
above products through December 31, 1997. The Company has a right to renew the
agreement for 2 additional years provided the Company generates sales which
produce royalties to HVC of at least $150,000. The Company has agreed to pay HVC
royalties in the amount of eight percent (8%) of the sales of the products and
has guaranteed a minimum of $45,000 in royalties during the initial term of the
license. To date the Company has paid $25,000 in advance royalties to HVC. This
license applies to the United States and Canada.

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<PAGE> 24

The Company has entered into an additional exclusive agreement with HVC for
the use of The Big Comfy Couch(TM) name and logo on an inflatable couch to be
functional as furniture for children. The shipment of this product should begin
in the fourth quarter of 1996. Under the terms of the license, the Company has
exclusive rights for such product through December 31, 1998. The Company has a
right to renew the agreement for two additional years provided the Company
generates sales which produce royalties to HVC of at least $200,000. The Company
has agreed to pay HVC royalties in the amount of eight percent (8%) of the sales
of such product and has guaranteed a minimum of $40,000 in royalties during the
initial term of the license. To date, the Company has paid $10,000 in advance
royalties to HVC. This license applies to the United States and Canada.

Because the Company obtains many of its products through licenses, it
relies on trademark and other protection obtained by its licensors. The license
agreements for such products, including the license relating to Phase 10, permit
the Company to utilize the trademarks and other proprietary rights owned by the
licensor.

The Company owns trademarks on its games Roundabout(R), Tyrannorace(R), and
Take Five(R) and has a trademark pending for Upsets(TM). The Company has applied
for a patent on a certain game playing apparatus to be used in connection with
its "10 in 1" games, which patent application is pending. The Company
recognizes, however, that patents are not totally effective in prohibiting
competitors from producing similar products that could compete with those of the
Company. Therefore, the Company does not rely heavily upon patent protection to
maintain its competitive provision, but instead relies to a greater extent on
trademark and copyright protection.

The Company has applied for trademark protection on the name "Fundex Games"
and its related logo. The trademark applications are pending.

One of the Company's strategies is to use character licenses created by
others, where appropriate, on its games and puzzles. The Company is currently in
negotiations with respect to various licenses, although the Company has no
agreements or understanding in respect of any such license.

BACKLOG

The Company generally ships products on a timely basis as requested by the
customer. Most large customers purchase products on a replenishment basis at
regular intervals (i.e., daily, weekly, monthly). Many orders request at once
delivery and these orders are shipped within 48 hours. The Company considers
backlog to be written orders received but not yet shipped by the Company. The
Company's backlog at August 31, 1996 was approximately $1,200,000. The Company's
backlog is generally low by industry standards since many customers operate on a
replenishment basis with frequent orders. Because customer orders may be
cancelled at any time without penalty, the Company's backlog may not accurately
indicate sales for any future period.

MANUFACTURING

The Company's products are currently manufactured for the Company by
unaffiliated third parties located in the United States, China, Taiwan, and
Indonesia. Approximately 60% of the Company's products are manufactured within
the United States. The manufacturers are chosen based on their ability to
manufacture the product to meet delivery requirements, quality, reliability and
price. The use of third party manufacturers not only enables the Company to
avoid incurring fixed operating costs associated with manufacturing, but also
affords the Company greater flexibility on the manufacturing process and
materials used in the products since the Company is not restricted by the
capabilities of expensive purchased equipment. All manufacturing services are
paid for by open account with the manufacturer. The Company believes that
alternative sources of supply are available for each of the products. While the
Company has not experienced any significant delay in the delivery of its
products from its manufacturers, delivery schedules are beyond the control of
the Company and could in the future adversely affect the Company's sales.

The Company, at its Indianapolis facility, assembles point of purchase
displays for its customers. Although the Company does not conduct the actual
manufacturing of its products, it does participate in the design of the
prototype product, production tooling and molds, printing plates and dies and
seeks to insure

21
<PAGE> 25

quality control by actively reviewing the production processes and testing goods
produced by its manufacturers.

The principal raw materials used in the manufacture of the Company's
products are printed paper and paperboard, plastics, and wood. The Company
believes there are adequate sources of supply for such raw materials, and
although the Company does not manufacture its own products, the molds, films,
printing plates, and dies used in manufacturing the Company's products are
transferable if the Company employs different manufacturers.

ADVERTISING

The Company generally budgets approximately 3% of its gross sales for the
advertising of its products, most of which is done in conjunction with retailers
in the form of cooperative advertising. The Company, through cooperative
advertising, grants rebates or credits to customers who agree to advertise the
Company's products. The advertising usually takes the form of newspaper flyers
and catalogues. The Company also advertises its products in trade and consumer
magazines. Although the Company has not used television advertising to date, it
plans to use television advertising in 1997 for at least three of its products,
including products from the Phase 10 line.

COMPETITION

The toy industry is highly competitive and sensitive to changing consumer
preferences and demands. Competition is based primarily on price, quality and
play value. In recent years, the toy industry has experienced rapid
consolidation driven, in part, by the desire of industry competitors to offer a
range of products across a broader variety of categories. The Company competes
against many companies with products that are better known than those
distributed by the Company. Some of the Company's competitors are substantially
larger and more diversified and have substantially greater financial and
marketing resources than the Company, as well as greater name recognition, and
the ability to develop and market products similar to, and more competitively
priced than, those distributed by the Company. The Company competes with, among
others, Mattel, Inc., Hasbro, Inc. and its Milton Bradley and Parker Bros.
Divisions, and Pressman, Inc.

PRODUCTS LIABILITY

The Company has products liability insurance coverage for its operations in
the aggregate amount of $6,000,000. This amount of coverage has been acceptable
to its customers. The Company has not been the subject of any products liability
claim or litigation.

GOVERNMENT REGULATION

The Company's products are subject to the Consumer Product Safety Act
("CPSA") and the regulations promulgated thereunder. The CPSA enables the
Consumer Product Safety Commission ("CPSC") to exclude from the market consumer
products that fail to comply with applicable safety regulations or otherwise
create a substantial risk of injury. The CPSC may also require the repurchase by
the manufacturer of articles that are banned. Some states, local and foreign
governmental authorities have similar laws.

SEASONALITY AND QUARTERLY FLUCTUATIONS

Sales of games and puzzles are seasonal, with a majority of retail sales
occurring from September to December. Shipments of games and puzzles are
greatest during the third and fourth quarters. The Company's business is
seasonal, with approximately 60% of the Company's sales being generated during
the third and fourth quarters. Generally, the first quarter is the lowest period
of shipping in the industry and therefore has the lowest profits due to fixed
operating costs incurred during this period. Many of the Company's product lines
have low retail prices, and such product lines have somewhat less seasonality
than high priced toy products.

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<PAGE> 26

EMPLOYEES

As of September 1, 1996 the Company employed 8 full time and 5 part time
employees, including 3 executive officers. All of the Company's employees are
located in the United States. The Company believes that its relations with its
employees are good. None of the Company's employees are represented by a union.

PROPERTIES

The Company leases approximately 16,000 square feet of space at 3750 West
16th Street, Indianapolis, Indiana which is currently used for the Company's
executive offices and for warehousing and distribution. The current rent for
this building is $3,500 per month. The lease on this building expires on
December 31, 1996. Negotiations are taking place to extend the term of the
lease. The Company anticipates that it will renew the lease at a higher rental.
However, if the lease is not renewed, the Company is confident that it will be
able to obtain other space, perhaps at a higher rental, on an expedited basis.
The Company believes that the failure to renew the lease will not result in a
material disruption of its business. The Company also leases approximately 1000
square feet of showroom and office space at the Toy Center South, 200 Fifth
Avenue, Room 516, New York, New York at a total current rental of $2,040 per
month. The showroom is used to exhibit for the International Toy Fair in
February of each year, and is used as an office for the balance of the year. The
showroom lease expires April 30, 2006. The Company believes it will need to seek
additional warehousing and distribution space in the upcoming year as a result
of the anticipated increased sales volume. The Company may also need a larger
New York showroom as the number of products and product lines grow.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

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<PAGE> 27

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Carl E. (Chip) Voigt, IV.................. 36 President, Chairman of the Board, Chief
Executive Officer
Carl E. (Pete) Voigt, III................. 59 Executive Vice President, Secretary and
Director
Richard K. Bowden......................... 43 Treasurer, Chief Financial Officer
William H. Prophater(1)................... 51 Director
Dennis J. Weidenaar(1)(2)................. 59 Director
Sheldon Drobny(2)......................... 50 Director
</TABLE>

- -------------------------
(1) Member of Compensation Committee

(2) Member of Audit Committee

Carl E. (Chip) Voigt, IV, is the President, Chief Executive Officer and
Chairman of the Board of the Company. Mr. Voigt has been engaged in the toy and
game industry for over 12 years. He was one of the founders of the Company and
has been engaged as President and Chief Executive Officer of the Company since
inception. Prior to his activities on behalf of the Company, Mr. Voigt spent
four years as a manufacturer's representative in the toy and game industry. Mr.
Voigt received a Bachelor of Science degree in Industrial Management from Purdue
University.

Carl E. (Pete) Voigt, III, has been engaged in the game and toy business
for 37 years. He was one of the founders of the Company and has been engaged as
its Executive Vice President since inception. Mr. Voigt was a manufacturer's
representative in the toy and game industry from 1974 until 1988, and
participated in the development and implementation of the sales and marketing
plan for the card game Uno, the best selling card game in the world. Prior to
that time, Mr. Voigt was a salesman or buyer in the toy and game business.

William H. Prophater has been a director of the Company since July 1996.
Mr. Prophater has been executive vice-president of Style-Line, Inc. since 1992.
From 1990 to 1991, Mr. Prophater was vice president and general merchandise
manager of Ames Department Stores. Prior to that time, Mr. Prophater was senior
vice president and general merchandise manager of Gold Circle Stores. Mr.
Prophater received a BS-BA degree in management from Creighton University.

Dennis J. Weidenaar has been a director of the Company since August 1996.
Mr. Weidenaar is the Dean of the Krannert Graduate School of Management and
School of Management at Purdue University. Mr. Weidenaar serves on the boards of
directors of Lafayette Life Insurance Company and The Washington Campus and on
the advisory board of St. Elizabeth Hospital. He has also served as a consultant
in economic education for TRW, Inc., B.F. Goodrich, Panhandle Eastern Pipeline
Company, Borg-Warner Company and R.R. Donnelly Company. Mr. Weidenaar received
an A.B. degree in economics from Calvin College, an M.A. in economics from the
University of Chicago, and a Ph.D. in economics from Purdue University.

Richard K. Bowden has been Treasurer and Chief Financial Officer of the
Company since August, 1996. From 1982 until August 1996, Mr. Bowden was
Controller of O.W.D. Incorporated, a producer of disposable plastic products for
the grocery industry. He was also appointed Vice President of O.W.D. in 1985,
and Executive Vice President in 1987. Mr. Bowden is a Certified Public
Accountant and a Certified Practitioner in Inventory Management. Mr. Bowden
received a B.S. degree in accounting from Loyola College and an M.B.A. from the
Amos Tuck School of Business Administration.

Sheldon Drobny has been a director of the Company since September, 1996.
Mr. Drobny is a principal in the accounting firm of Adler, Drobny & Fischer,
LLC. Mr. Drobny is a Certified Public Accountant. Prior to joining Adler, Drobny
& Fischer, LLC, Mr. Drobny was with the Internal Revenue Service. Mr. Drobny
received a B.S. degree in accounting from Roosevelt University.

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<PAGE> 28

The Company intends to establish a Board of Directors of seven persons. At
the time of the closing of the Offering, the Board will have 2 vacancies.
Pursuant to the Underwriting Agreement, for a period of 3 years from the date of
this Prospectus, a Representative of the Underwriters is entitled to nominate
one person to the Board of Directors. The Board of Directors intends to appoint
the Representative's nominee to the Board of Directors within 60 days of the
closing of the Offering. Within 60 days of the closing of the Offering, the
Board of Directors intends to appoint an additional director who is neither an
officer nor employee of the Company.

The Company's By-Laws provide that the authorized number of directors of
the Company must be no less than four (4) and no more than nine (9). The number
of authorized directors may be set from time to time by either the Board of
Directors or the affirmative vote of a majority of the Company's shareholders.
All directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors, if any. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.

COMPENSATION OF DIRECTORS

Non-employee Directors receive $1,000 for each meeting of the Board of
Directors or committee meeting that they attend, plus reimbursement of
reasonable expenses incurred in attending meetings. Directors who are employees
of the Company serve as directors without compensation. Non-Employee Directors
are entitled to participate in the 1996 Stock Option Plan for Non-Employee
Directors.

1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

The Company's 1996 Stock Option Plan for Non-Employee Directors (the
"Director Plan"), adopted by the Board of Directors and shareholders in October,
1996, provides for certain automatic grants of options to the Company's
non-employee Directors in consideration for their services performed as
directors of the Company. A total of 50,000 shares of Common Stock has been
authorized for issuance under the Director Plan. Each non-employee Director will
automatically receive on the commencement of service as a Director and on each
anniversary thereof on which such director remains a director of the Company
options to purchase 2,000 shares of the Common Stock. The exercise price of all
options granted under the Director Plan will be equal to the fair market value
of such shares on the date of grant. No option grant under the Director Plan may
be exercised before the expiration of the fiscal year for which it was granted,
provided that any option granted under the Plan shall become immediately
exercisable upon the retirement of the Director because of age, death or
disability. All such options expire, to the extent unexercised, ten years after
the date of grant, unless terminated sooner under the provisions of the Director
Plan.

BOARD COMMITTEES

The Compensation Committee consists of Messrs. Prophater and Weidenaar. The
function of the Compensation Committee is to make recommendations to the Board
with respect to compensation of management employees, including grants of
options pursuant to the Stock Option Plan and other benefit plans. The
Compensation Committee will always consist solely of outside directors.

The Audit Committee consists of Messrs. Weidenaar and Drobny. The Audit
Committee reviews the performance of the Company's independent auditors, their
fees and services and the scope of their audit as well as the needs for internal
auditing procedures and the adequacy of internal controls.

EXECUTIVE COMPENSATION

The following table sets forth the cash compensation paid by the Company
during 1995 to the Chief Executive Officer and to each of the Company's
executive officers whose compensation exceeded $100,000 on an annual basis.

The Company does not maintain a bonus plan for the compensation of
executive officers, although the Board of Directors has the authority to provide
discretionary bonuses.

25
<PAGE> 29

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------------------------
AWARDS
ANNUAL COMPENSATION -------------------------- PAYMENTS
------------------------------ ---------------------------
(E) (F) (I)
(A) (C) (D) OTHER ANNUAL RESTRICTED (H) ALL OTHER
NAME AND (B) SALARY BONUS COMPENSATION STOCK AWARDS (G) PLAN PAYMENT COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) OPTIONS(#) ($) ($)
- -------------------- ---- ------- ----- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl E. (Chip)
Voigt, IV(1)...... 1995 128,950 -- -- -- -- 30,000 --
President and Chief
Executive Officer 1994 133,375 -- -- -- -- 30,000 --
Carl E. (Pete)
Voigt, III(1)..... 1995 128,950 -- -- -- -- 30,000 --
Executive Vice
President and
Secretary 1994 133,375 -- -- -- -- 30,000 --
</TABLE>

- -------------------------
(1) Because the Company was an S Corporation, all of its income was taxed to its
shareholders. The Company distributed a portion of its previously taxed
income to its shareholders periodically. During the years 1994 and 1995, the
officers named above received S distributions of $79,212 and $271,800
respectively.

1996 EMPLOYEE STOCK OPTION PLAN

The Company's Board of Directors and stockholders adopted the 1996 Employee
Stock Option Plan (the "Stock Option Plan") in October of 1996. The purpose of
the Stock Option Plan is to attract and retain qualified personnel, to provide
additional incentives to employees, and to promote the success of the Company's
business. Subject to adjustments resulting from changes in capitalization, no
more than 250,000 shares of Common Stock may be issued pursuant to the exercise
of options granted under the Plan. The Plan provides for administration by the
Board of Directors, which authority may be delegated to the Compensation
Committee or another committee consisting of outside directors.

Subject to the provisions of the Plan, the Board of Directors has the sole
discretion to determine to whom among those eligible, and the time or times at
which, options will be granted, the number of shares to be subject to each
option and the manner in and price at which options may be exercised. Options
are designated at the time of grant as either "Incentive Stock Options" intended
to qualify under Section 422 of the Internal Revenue Code or "Non-qualified
Options" which do not so qualify.

The Board of Directors is authorized to grant Incentive Stock Options from
time to time to such employees of the Company as the Board of Directors, in its
sole discretion, may determine. Employees of the Company and independent
contractors providing services to or for the benefit of the Company are eligible
to receive Non-qualified Stock Options under the Plan.

The exercise price of each option is determined by the Board of Directors,
but may not, in the case of Incentive Stock Options, be less than 100% of the
fair market value of the shares of Common Stock covered by the option on the
date the option is granted. In the case of Non-qualified Options, the option
price per share may be less than, equal to or greater than the fair market value
of the shares of Common Stock covered by the option on the date the option is
granted, but not less than 85% of the fair market value of the Common Stock on
the date of grant. If an Incentive Stock Option is to be granted to an employee
who owns more than 10% of the Company's Common Stock, then the exercise price
may not be less than 110% of the fair market value of the common stock covered
by the Incentive Stock Option on the date the option is granted.

The Board of Directors has the discretion to fix the term of each option
granted under the Plan; provided, however, that the maximum length of term of
each Incentive Stock Option is 10 years, subject to earlier

26
<PAGE> 30

termination as provided in the Plan (or five years in the case of Incentive
Stock Options granted to an employee who owns more than 10% of the Company's
Common Stock).

Options generally terminate thirty days after termination of the optionee's
employment unless such termination is caused by the permanent disability or
death of the optionee. The Stock Option Plan may be amended at any time by the
Board of Directors, although certain amendments would require stockholder
approval.

LIMITATIONS ON OFFICERS' AND DIRECTORS' LIABILITY AND INDEMNIFICATION

Nevada law permits a corporation through its articles of incorporation (the
"Articles") to exonerate its directors from certain personal liability to the
corporation or its stockholders from monetary damages for breach of fiduciary
duty as a director other than (i) for acts or omissions which involve
intentional misconduct, fraud or knowing violation of law or (ii) in connection
with the payment of distributions to stockholders. The Company's Articles
provide that its directors and officers are relieved from personal liability to
the full extent of the law.

The Company's Articles also authorize the Company to indemnify directors
and officers to the full extent of the law. Nevada law provides that a
corporation may indemnify officers and directors for actions taken by them in
connection with the Company if the person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interest of
the corporation. Nevada law permits payment of expenses to officers and
directors in defending a proceeding prior to the final disposition provided the
officer or director undertakes to repay the amount if it is ultimately
determined he is not entitled to be indemnified.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company 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.

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of the date of this Prospectus and as
adjusted at that date to reflect the sale of Common Stock offered hereby, the
number of shares of Common Stock beneficially owned (i) by each director of the
Company, (ii) by each executive officer of the Company identified in the Summary
Compensation Table, (iii) by each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, and
(iv) by all directors and executive officers as a group. Unless otherwise
indicated, each of the following persons has sole voting and investment power
with respect to the shares of Common Stock set forth opposite their respective
names.

<TABLE>
<CAPTION>
BENEFICIALLY OWNED SHARES OF
PRIOR TO BENEFICIALLY OWNED
OFFERING(2) AFTER OFFERING
-------------------- -----------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT(2)
- ----------------------------------------------------- --------- ------- --------- ----------
<S> <C> <C> <C> <C>
Carl E. (Chip) Voigt, IV............................. 575,000 46.9% 575,000 25.8%
Carl E. (Pete) Voigt, III............................ 575,000 46.9% 575,000 25.8%
William A. Prophater(3).............................. -- * -- *
Sheldon Drobny(4)(5)................................. 75,000 6.1% 75,000 6.1%
Richard E. Bowden.................................... -- * -- *
Dennis J. Weidenaar(6)............................... -- * -- *
Toy Paradise Partnership(4).......................... 75,000 6.1% 75,000 3.4%
All directors, executive officers and other 5% owners
as a group(7)...................................... 1,225,000 100% 1,225,000 55%
</TABLE>

- -------------------------
* Less than 1% of the outstanding shares of Common Stock

27
<PAGE> 31

(1) The address of each of the executive officer and directors, except where
otherwise noted in the footnotes, is c/o Fundex Games, Ltd. 3750 W. 16th
Street, Indianapolis, IN 46222.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally include voting or
investment power with respect to securities.

(3) The address of Mr. William A. Prophater is Chelsea House, 435 W. State St.,
P.O. Box 2706, Columbus, OH 43216.

(4) Mr. Sheldon Drobny is a general partner in Toy Paradise Partnership. Mr.
Drobny owns 19.4% of such partnership. The shares owned by Toy Paradise
Partnership are also included in the number of shares beneficially owned by
Mr. Drobny. The remaining general partners of Toy Paradise Partnership are
Aaron Fischer, Randall Goulding, Revy Rosenberg, Stuart Sheiman, Gordon
Barlow, Robert Notow and Buzz Simons.

(5) The address of Toy Paradise Partnership and Mr. Sheldon Drobny is 95 Revere
Drive, Suite A, Northbrook, IL 60062.

(6) The address of Mr. Dennis J. Weidenaar is Krannert School of Management,
Purdue University, 1310 Krannert Building, West Lafayette, IN 47907.

(7) Includes 75,000 shares owned by Toy Paradise Partnership which are also
deemed to be beneficially owned by Mr. Drobny.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to an agreement dated December 18, 1986, the Voigts, officers and
directors of the Company, obtained from K&K International and Kenneth Johnson
the rights to market the game commonly known as "Phase 10". In connection with
the formation of the Company, the Voigts assigned all their rights under such
agreement to the Company with respect to the United States market. The Voigts
retained the right to market any and all of the products identified in the
agreement in any market existing throughout the world other than the United
States. Effective August 31, 1996, the Voigts assigned all of their remaining
rights in the Agreement to the Company. See "Business -- License Agreement and
Intellectual Property."

On December 4, 1995, the Company entered into a joint venture agreement
with Toy Paradise Partnership ("TPP") for purposes of developing and exploiting
certain games. The venture was known as Toy Stratagem, LLC. Pursuant to the
joint venture agreement, the Company and TPP each owned a 50% interest in the
joint venture. Pursuant to an agreement dated August 27, 1996, TPP agreed to
transfer its interest in Toy Stratagem, LLC to the Company in exchange for
75,000 shares of Common Stock and 75,000 warrants to acquire Common Stock at a
price equal to 120% of the initial Offering price. In the event the Company does
not complete a public offering prior to August 28, 1997, the warrant exercise
price will be $9.60. The warrants are exercisable at any time during the four
year period beginning December 1, 1997. Sheldon Drobny, a director of the
Company, is a general partner in TPP, owning a 19.4% interest in such
partnership.

On July 31, 1996, the Company obtained certain financing (the "Bridge
Loan") in the amount of $500,000. The Bridge Loan was arranged for the Company
by Paradigm Venture Investors, LLC ("Paradigm"), an affiliate of Sheldon Drobny,
a director of the Company. Paradigm's activities were limited to contacting a
small number of its clients and associates with respect to their interest in
participating in the Bridge Loan. Paradigm received no compensation in
connection with the Bridge Loan. Mr. Drobny loaned the sum of $62,334 to the
Company as part of the Bridge Loan. Certain affiliates of Mr. Drobny, as well as
certain unrelated parties, also loaned funds to the Company as part of the
Bridge Loan. Each loan comprising the Bridge Loan is evidenced by a Secured
Debenture, each of which is secured by a Security Agreement pursuant to which
all of the Company's assets are pledged as collateral for the Bridge Loan. The
terms of the Bridge Loan provide for interest to accrue at the rate of 10% per
year, and require repayment of the entire Bridge Loan from the proceeds of this
Offering.

Until August 28, 1996, the Company was an S Corporation under the Internal
Revenue Code. Since all income of an S Corporation is taxed to its shareholders,
the Company made periodic distributions of income to its shareholders. During
the years 1994, 1995 and for the ten months ended October 31, 1996, the Company

28
<PAGE> 32

made income distributions to Carl E. Voigt, III and Carl E. Voigt, IV,
collectively, of $79,212, $271,800 and $42,000, respectively. The Company
accrued an additional distribution to the shareholders of $196,000 as of August
28, 1996, the date the S election of the Company terminated.

DESCRIPTION OF SECURITIES

GENERAL

The Company is authorized to issue up to 8,000,000 shares of Common Stock,
$.001 par value, and 1,000,000 shares of Preferred Stock, $1.00 par value. There
are 1,225,000 shares of Common Stock outstanding at the date of this Prospectus.
No shares of Preferred Stock are issued or outstanding. At the date of this
Prospectus, there were 3 holders of record of the Company's Common Stock.

COMMON STOCK

Subject to the rights of holders of Preferred Stock, holders of Common
Stock are entitled to share ratably in dividends as are declared by the Board of
Directors of the Company out of funds legally available for the payment of
dividends. In the event of any liquidation, dissolution or winding-up of the
Company, subject to the rights of holders of Preferred Stock, the holders of
Common Stock will be entitled to receive a pro rata share of the net assets of
the Company remaining after payment or provision for payment of the debts and
other liabilities of the Company.

Holders of Common Stock are entitled to one vote per share in all matters
to be voted upon by stockholders. Cumulative voting for the election of
directors, and all other matters brought before stockholders meetings, whether
annual or special, is not permitted. Holders of Common Stock have no preemptive
or subscription rights and the Common Stock is not subject to redemption or
assessment.

All of the outstanding shares of Common Stock are, and the Common Stock to
be sold pursuant to this Offering upon issuance and sale, will be fully paid and
non-assessable. Holders of Common Stock of the Company are not liable for
further calls or assessments.

PREFERRED STOCK

Pursuant to its Articles, the Company is authorized to issue "blank check"
preferred stock which may be issued from time to time in one or more series by
the Company's Board of Directors, with such designations, relative rights,
priorities, preferences, qualifications, limitations and restrictions as the
Board of Directors determines. The rights, preferences, limitations and
restrictions of different series of preferred stock may differ with respect to
dividend rates, amounts payable on liquidation, voting rights, conversion
rights, redemption provisions, sinking fund provisions and other matters. The
issuance of preferred stock, while providing flexibility for corporate purposes,
could adversely affect the voting power of the holders of Common Stock and,
under certain circumstances, make it more difficult for a third party to gain
control of the Company, discourage bids for the Company's Common Stock at a
premium or otherwise adversely affect the market price of the Common Stock.

WARRANTS

REPRESENTATIVE'S WARRANTS

In connection with this Offering, the Company has authorized the issuance
of up to 100,000 Representative's Warrants and has reserved 100,000 shares of
Common Stock and 100,000 Warrants for issuance upon exercise of the
Representative's Warrants and 100,000 shares of Common Stock issuable upon
exercise of the Warrants underlying the Representative's Warrants. Each
Representative's Warrant will entitle the holder to acquire, at an exercise
price of $ per share, one share of Common Stock and a Warrant to acquire one
share of Common Stock at an exercise price equal to $ per share. The other
terms of the Representative's Warrants are substantially similar to the
Warrants, except that the Representative's Warrants (and the Warrants included
therein) will not be publicly tradeable and will not be redeemable by the
Company. The

29
<PAGE> 33

Representative's Warrants will be exercisable at any time from the first
anniversary of the date of this Prospectus until the fifth anniversary of the
date of this Prospectus.

REDEEMABLE WARRANTS

The following is a brief summary of certain provisions of the Warrants.
Reference is made to the actual text of the Warrant Agreement between the
Company and National Securities Corporation (the "Warrant Agent"), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part, for a more complete description of the Warrants. See
"Additional Information." Until completion of this Offering, the shares of
Common Stock and the Warrants offered hereby may only be purchased together on
the basis of one share of Common Stock and one Warrant, but will trade
separately immediately after the Offering.

EXERCISE PRICE AND TERMS. Each Warrant entitles the registered holder
thereof to purchase one share of Common Stock at an initial exercise price of
$[150% of the initial public offering price] per share at any time during the
period commencing one (1) year from the date of this Prospectus and terminating
five (5) years from the date of the Prospectus, subject to adjustment in
accordance with the anti-dilution and other provisions referred to below. The
holder of any Warrant may exercise such Warrant by surrendering the certificate
representing the Warrant to the Warrant Agent, with the subscription form
thereon properly completed and executed, together with payment of the exercise
price. No fractional shares will be issued upon exercise of the Warrants.

The exercise price of the Warrants bears no relationship to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.

ADJUSTMENTS. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the surviving
corporation) or sale of all or substantially all of the assets of the Company,
in order to enable warrantholders to acquire the kind and number of shares of
stock or other securities or property receivable in such event by a holder of
the number of shares of Common Stock that might have been purchased upon the
exercise of the Warrant.

REDEMPTION PROVISIONS. Commencing eighteen (18) months after the date of
this Prospectus, the Warrants are subject to redemption at $0.01 per Warrant on
thirty (30) days' prior written notice to the Warrantholders if the average
closing bid price of the Common Stock as reported on the CHX equals or exceeds
$[225% of the initial public offering price] per share of Common Stock (subject
to adjustment for stock dividends, stock splits, combinations or
reclassifications of the Common Stock), for any twenty (20) trading days within
a period of thirty (30) consecutive trading days ending on the fifth trading day
prior to the date of the notice of redemption. In the event the Company
exercises the right to redeem the Warrants, such Warrants will be exercisable
until the close of business on the business day immediately preceding the date
for redemption fixed in such notice. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the holder will be
entitled only to the redemption price.

TRANSFER, EXCHANGE AND EXERCISE. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time on or prior to their expiration date five (5) years from the date of this
Prospectus, at which time the Warrants become wholly void and of no value. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.

WARRANTHOLDER NOT A STOCKHOLDER. The Warrants do not confer upon holders
any voting, dividend or other rights as stockholders of the Company.

MODIFICATION OF WARRANTS. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders.

30
<PAGE> 34

The Company may, in its sole discretion, lower the exercise price of the
Warrants for a period of not less than thirty (30) days on not less than thirty
(30) days' prior written notice to the warrantholders and the Representative.
Modification of the number of securities purchasable upon the exercise of any
Warrant, the exercise price and the expiration date with respect to any Warrant
requires the consent of two-thirds of the warrantholders. No other modifications
may be made to the Warrants without the consent of two-thirds of the
warrantholders.

A significant amount of the Securities offered hereby may be sold to
customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such securities through or with the
Representative. Although it has no obligation to do so, the Representative
currently intends to make a market in the Company's Securities and may otherwise
effect transactions in such Securities. If it participates in the market, the
Representative may exert a dominating influence on the market, if one develops,
for the Securities described in the Prospectus. Such market-making activity may
be discontinued at any time. The price and liquidity of the Common Stock and the
Warrants may be significantly affected by the degree, if any, of the
Representative's participation in such market. See "Underwriting".

The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company will use its best
efforts to have all of the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.

Until completion of this Offering, the shares of Common Stock and the
Warrants offered hereby may only be purchased together on the basis of one share
of Common Stock and one Warrant, but will trade separately immediately after the
Offering. Although the Securities will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise qualified
for sale, purchasers may buy Warrants in the aftermarket in, or may move to,
jurisdictions in which the shares underlying the Warrants are not so registered
or qualified during the period that the Warrants are exercisable. In this event,
the Company would be unable to issue shares to those persons desiring to
exercise their Warrants, and holders of Warrants would have no choice but to
attempt to sell the Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised.

OTHER WARRANTS

The Company has granted certain warrants to Toy Paradise Partnership to
purchase an aggregate of 75,000 shares of Common Stock at an exercise price per
share equal to 120% of the initial public offering price. See "Certain
Relationships and Related Transactions."

TRANSFER AGENT

The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is Continental Stock Transfer & Trust Company.

NEVADA ANTI-TAKEOVER LAW

The Company will be governed by the provisions of Sections 78.411-78.444 of
the Nevada Business Corporation Act. In general, the Nevada statutes prohibit a
public Nevada corporation with at least 200 stockholders from engaging in a
"business combination" with an "interested shareholder" for a period of three
years after the person become an interested shareholder, unless the business
combination is approved in a prescribed manner. "Business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested shareholder. An "interested shareholder" is a person who is the
beneficial owner, directly or indirectly, of 15% or more of the corporation's
voting stock or who is an affiliate or associate of the corporation and at any
time within three years prior to the date in question was the beneficial owner,
directly or indirectly, of 15% or more of the corporation's voting stock.
Additionally, at the end of the three

31
<PAGE> 35

year period, any such business combination must be approved by a supermajority
vote of the stockholders, unless certain specified fair price conditions are
met.

Nevada's "Control Share Acquisition Statute" found in Sections
78.378-78.379 of the Nevada Business Corporation Act prohibits an acquiror,
under certain circumstances, from voting shares for a target corporation's
stock, after exceeding certain threshold ownership percentages, unless the
acquiror obtains the approval of the target corporation's shareholders. This
statute only applies to Nevada corporations with at least 200 shareholders, at
least 100 of which are Nevada residents, and only if such corporation is doing
business directly or indirectly in Nevada. The Company may not meet the
requirements for this statute to apply. However, if the statute did apply and an
acquiror met the threshold ownership percentages, then pursuant to such statutes
and the Company's Articles, the acquiror would be deprived of the right to vote
until two-thirds of the disinterested stockholders restored that right. If the
stockholders failed to restore the voting rights, then the corporation, if so
provided in its Articles or By-laws, could call an acquiror's shares for
redemption. The Company's Articles permit such redemption. The statute also
provides that the stockholders who do not vote in favor of restoring voting
rights may demand payment for the "fair value" of their shares.

OTHER ANTI-TAKEOVER PROVISIONS

The anti-takeover provisions described above, together with the ability of
the Board of Directors to issue Preferred Stock may have the effect of delaying
or deterring a change in the control of the management of the Company. See "Risk
Factors -- Effect of Anti-Takeover Provisions."

SHARES ELIGIBLE FOR FUTURE SALE

Until completion of this Offering, the shares of Common Stock and the
Warrants offered hereby may only be purchased together on the basis of one share
of Common Stock and one Warrant, but will trade separately immediately after the
Offering. Prior to this Offering, there has been no market for the Common Stock
or Warrants of the Company. Future sales of substantial amounts of Common Stock
or Warrants in the public market could adversely affect market prices prevailing
from time to time. Sales of substantial amounts of Common Stock or Warrants of
the Company in the public market after various restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.

Upon completion of this Offering, the Company will have 2,225,000 shares of
Common Stock outstanding (2,375,000 shares if the Representative's overallotment
option is exercised in full), and 1,000,000 Warrants outstanding (1,150,000
Warrants if the Representative's over allotment option is exercised in full).
All of the 1,000,000 shares of Common Stock sold in this Offering (plus any
shares sold as a result of the exercise of the Representative's overallotment
option) by the Company, and subject to certain conditions commencing one year
after the date of this Prospectus, up to 1,000,000 shares of Common Stock
issuable upon exercise of the Warrants, and, commencing approximately one year
after the date of this Prospectus, up to 100,000 shares of Common Stock issuable
upon exercise of the Representative's Warrants, will be freely transferable
without further restriction or registration under the Act, except that any
shares purchased by an "affiliate" of the Company (as defined under the Act)
will be subject to the resale limitations of Rule 144.

The 1,225,000 shares which were issued and outstanding prior to this
Offering are deemed "restricted securities" within the meaning of Rule 144
promulgated under the Act. Such restricted securities were purchased prior to
this Offering in transactions not involving a public offering and may only be
sold pursuant to a registration statement under the Act, in compliance with the
exemption provisions of Rule 144, or pursuant to another exemption under the
Act. These shares of Common Stock will, however, be subject to the Lock-Up
Agreements.

Holders of restricted securities must comply with the requirements of Rule
144 in order to sell their shares in the open market. In general, under Rule 144
as currently in effect, any affiliate of the Company and any person (or persons
whose sales are aggregated) who has beneficially owned his or her restricted
shares for at least two years, would be entitled to sell in the open market,
within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Company's Common

32
<PAGE> 36

Stock or (ii) the average weekly trading volume period reported on the NASDAQ
System during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain limitations on manner of sale, notice, requirements,
and availability of current public information about the Company. Non-affiliates
who have held their restricted shares for three years are entitled to sell their
shares under Rule 144(k) without regard to any of the above limitations,
provided they have not been affiliates for the three months preceding such sale.

The Commission has recently proposed regulations reducing the initial Rule
144 holding period to one year and the Rule 144(k) holding period to two years.
There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modifications would have a material effect on the
timing of eligibility for resale of shares of the Company's Common Stock.

The Company has reserved 300,000 shares of Common Stock for issuance under
the 1996 Stock Option Plan. The Company intends, immediately after the sale of
the Securities offered hereby, to register a total of 300,000 shares of Common
Stock reserved for issuance under the 1996 Stock Option Plan.

No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect the prevailing market price for the Common Stock.

33
<PAGE> 37

UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement, the underwriters named below, for whom National Securities
Corporation is acting as the Representative (the "Representative") has agreed to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, the respective number of shares of Common Stock and Warrants set
forth opposite their names below:

<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF WARRANTS
UNDERWRITERS TO BE PURCHASED TO BE PURCHASED
- ------------------------------------------------------------ ---------------- ------------------
<S> <C> <C>
National Securities Corporation.............................
---------------- ------------------
Total..................................................
================ ==================
</TABLE>

The Underwriting Agreement provides that the Underwriters will be obligated
to purchase, subject to the terms and conditions set forth therein, all of the
shares of Common Stock and Warrants being sold pursuant to the Underwriting
Agreement if any of the shares of Common Stock or Warrants are purchased.

The Company has been advised by the Representative that the Underwriters
propose to offer the Securities to the public at the initial public offering
prices set forth on the cover page of this Prospectus and to certain dealers at
such prices less a concession not in excess of $ per share of Common Stock
and $
per Warrant, and that the Underwriters and such dealers may reallow a discount
not in excess of $ per share of Common Stock and $ per Warrant to other
dealers. After the public Offering, the public Offering price and concessions
and discounts to dealers may be changed.

Under the terms of the Underwriting Agreement, the Company has agreed to
indemnify the Underwriter against certain liabilities, including liabilities
under the federal securities laws, or to contribute to payments which the
Underwriter may be required to make in respect thereof. The Company has been
advised that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.

The Company has granted the Underwriters an over-allotment, exercisable
within 45 days of the date of this Prospectus, to purchase up to 150,000 shares
of Common Stock and/or 150,000 Warrants at the public offering price per share
of Common Stock and Warrant, respectively, offered hereby, less underwriting
discounts and the non-accountable expense allowance, for the sole purpose of
covering over-allotments, if any. The over-allotment option may be exercised to
purchase units consisting of one share of Common Stock and one Warrant, or
shares of Common Stock or Warrants or any combination thereof. To the extent
that the Underwriters exercise such option, each Underwriter may be committed,
subject to certain conditions, to purchase a number of additional Securities
proportionate to such Underwriters' initial commitment pursuant to the
Underwriting Agreement.

Upon the exercise of any Warrants more than one year after the date of this
Prospectus, which exercise was solicited by the Representative, and to the
extent not inconsistent with the guidelines of the National Association of
Securities Dealers, Inc. and the Rules and Regulations of the Commission, the
Company has agreed to pay the Representative a commission of 5% of the aggregate
exercise price of such Warrants. However, no compensation will be paid to the
Representative in connection with the exercise of the Warrants if (a) the market
price of the Common Stock is lower than the exercise price, (b) the Warrants are
held in a discretionary account, or (c) the Warrants are exercised in an
unsolicited transaction where the holder of the Warrant has not stated in
writing that the transaction was solicited and has not designated in writing the
Representative as soliciting agent. Unless granted an exemption by the
Commission from Rule 10b-6 under the Exchange Act, the Representative and any
soliciting broker-dealers will be prohibited from engaging in any market-making
activities or solicited brokerage activities with regard to the Company's
securities for the periods prescribed by exemption (xi) to Rule 10b-6 before the
solicitation activity or the termination (by

34
<PAGE> 38

waiver or otherwise) of any right that the Representative and any soliciting
broker-dealer may have to receive a fee for the exercise of the Warrants
following such solicitation. As a result, the Representative and any soliciting
broker-dealers may be unable to continue to provide a market for the Common
Stock or Warrants during certain periods while the Warrants are exercisable. If
the Representative has engaged in any of the activities prohibited by Rule 10b-6
during the periods described above, the Representative has undertaken to waive
unconditionally its rights to receive a commission on the exercise of such
Warrants.

The Company has agreed to sell to the Representative, for an aggregate of
$10.00, warrants to purchase 100,000 shares of Common Stock and/or 100,000
Warrants (the "Representative's Warrants"). The Representative's Warrants are
initially exercisable at a price equal to $ per share of Common Stock and
$ per Warrant for a period of four years, commencing one year from the date
of this Prospectus, and are restricted from sale, transfer, assignment or
hypothecation for one year, except to officers of the Representative. The
exercise price and the number of shares of Common Stock and Warrants may, under
certain circumstances, be subject to adjustment pursuant to anti-dilution
provisions of the Representative's Warrants. The holders of the Representative's
Warrants will have piggyback and demand registration rights with respect to the
Securities issuable upon exercise of the Warrants.

The Company has agreed to pay the Underwriters a nonaccountable expense
allowance equal to 3% of the gross proceeds from the sale of the shares of
Common Stock and Warrants, of which $25,000 has been paid.

The Underwriting Agreement provides that, for a period of 13 months from
the date of this Prospectus, none of the current shareholders, executive
officers or directors will offer, sell or otherwise dispose of any Securities
without the consent of the Representative.

The Company has also agreed, for a period of three years from the date of
this Prospectus, at the option of the Representative, to nominate a designee of
the Representative for election to the Company's Board of Directors, or at the
Representative's option, to designate one person to be an observer at all Board
meetings.

Prior to the Offering, there existed no public market for the Common Stock
or the Warrants. The initial public offering price of the Securities and the
exercise price and terms of the Warrants have been determined by negotiation
between the Company and the Representative. Among the factors considered in
determining the initial public Offering price, in addition to prevailing market
and general economic conditions, were the history of, and prospects for, the
industry in which the Company principally competes, the historical results of
operations of the Company, the ability of the Company's management, the
Company's earnings prospects and other relevant factors. Therefore, the public
offering price of the Securities does not necessarily bear any relationship to
established valuation criteria. There can be no assurance that the price at
which the Common Stock or Warrants will sell in the public market after this
Offering will not be lower than the price at which the Securities were sold by
the Underwriter.

Mr. Carl E. Voigt, III and Mr. Carl E. Voigt, IV have granted the
Representative an irrevocable preferential right for a period of three years to
purchase for its account or to sell for the account of either of Messrs. Voigt
any Securities of the Company which either of them may seek to sell in the open
market.

National Securities Corporation intends, but is not obligated, to make a
market in the Common Stock and Warrants of the Company upon completion of the
Offering. The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not propose to be a complete statement of the
terms and conditions thereof. Copies of the Underwriting Agreement are on file
at the offices of the Representative, the Company and the Securities and
Exchange Commission. See "Additional Information".

LEGAL MATTERS

The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Much Shelist Freed Denenberg Ament Bell &
Rubenstein, P.C., Chicago, Illinois. Camhy Karlinsky & Stein LLP has acted as
counsel for the Underwriter in connection with certain legal matters relating to
this Offering.

35
<PAGE> 39

EXPERTS

The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement on Form SB-2 under the Securities Act
with respect to the Securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto, certain of which are omitted in accordance with the rules
of the Commission. For further information with respect to the Company and the
Securities offered hereby, reference is made to such Registration Statement and
the exhibits filed therewith. Statements made in this Prospectus as to the
contents of any contract, agreement or other documents are not necessarily
complete, and with respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, each such
statement being qualified in all respects by such reference. The Registration
Statement and exhibits may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, 13th floor, New York, New York. Copies
of such material may be obtained at prescribed rates from the Commission's
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
material may also be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov.

36
<PAGE> 40

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Balance Sheet at December 31, 1995 (audited) and August 31, 1996 (unaudited).......... F-3
Statements of Income for the years ended December 31, 1994 and 1995 (audited)
and the eight months ended August 31, 1995 and 1996 (unaudited)..................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1994 and 1995
(audited)
and the eight months ended August 31, 1996 (unaudited).............................. F-5
Statements of Cash Flows for the years ended December 31, 1994 and 1995 (audited)
and the eight months ended August 31, 1995 and 1996 (unaudited)..................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 41

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Fundex Games, Ltd.

We have audited the accompanying balance sheet of Fundex Games, Ltd. as of
December 31, 1995, and the related statements of income, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fundex Games, Ltd. at
December 31, 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.

BDO SEIDMAN, LLP

Chicago, Illinois
September 4, 1996

F-2
<PAGE> 42

FUNDEX GAMES, LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
AUGUST 31,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................... $ 69,636 $ 125,751
Accounts receivable -- trade, less allowance for doubtful accounts
of $17,500 in 1995 and 1996..................................... 421,695 1,108,206
Due from stockholders.............................................. 5,300 6,000
Inventories (Note 2)............................................... 587,114 920,577
Prepaid expenses, including deferred tax asset of $19,100 at August
31, 1996 (Notes 3, 4 and 5)..................................... 46,660 77,719
---------- ----------
TOTAL CURRENT ASSETS................................................. 1,130,405 2,238,253
---------- ----------
Property and Equipment
Machinery and equipment............................................ 115,125 149,560
Tools and dies..................................................... -- 23,169
Leasehold improvements............................................. 39,302 40,505
---------- ----------
154,427 213,234
Less accumulated depreciation and amortization..................... 50,865 70,286
---------- ----------
NET PROPERTY AND EQUIPMENT........................................... 103,562 142,948
---------- ----------
OTHER ASSETS
Deferred offering costs (Note 12).................................. -- 86,226
Intangible game rights (Note 10)................................... -- 382,787
---------- ----------
TOTAL OTHER ASSETS................................................... -- 469,013
---------- ----------
$1,233,967 $ 2,850,214
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 9)............................................. $ 40,000 $ 353,000
Accounts payable................................................... 331,041 702,780
Distribution payable to stockholders (Note 13)..................... -- 196,000
Accrued liabilities
Commissions..................................................... 69,668 140,754
Royalties and licenses (Notes 3 and 4).......................... 43,828 24,002
Pension (Note 11)............................................... 68,792 129,873
Other........................................................... 36,805 148,766
---------- ----------
TOTAL CURRENT LIABILITIES............................................ 590,134 1,695,175
DEFERRED RENT (NOTE 6)............................................... -- 14,828
---------- ----------
TOTAL LIABILITIES.................................................... 590,134 1,710,003
---------- ----------
COMMITMENTS (NOTES 4, 6, 8 AND 11)
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value; 1,000,000 shares authorized; no
shares issued or outstanding.................................... -- --
Common stock, $.001 par value; 8,000,000 shares authorized;
1,150,000 and 1,225,000 issued and outstanding in 1995 and
1996............................................................ 1,150 1,225
Paid-in capital.................................................... 60,100 1,138,986
Retained earnings.................................................. 582,583 --
---------- ----------
TOTAL STOCKHOLDERS' EQUITY........................................... 643,833 1,140,211
---------- ----------
$1,233,967 $ 2,850,214
========== ==========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE> 43

FUNDEX GAMES, LTD.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
EIGHT MONTHS EIGHT MONTHS
ENDED ENDED
YEAR ENDED YEAR ENDED AUGUST 31, AUGUST 31,
DECEMBER 31, DECEMBER 31, 1995 1996
1994 1995 ------------ ------------
------------ ------------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES (NOTE 14)......................... $3,802,001 $4,600,819 $2,633,721 $3,518,701
COST OF SALES............................... 2,474,809 3,218,443 1,803,156 2,394,024
---------- ---------- ---------- ----------
Gross profit................................ 1,327,192 1,382,376 830,565 1,124,677
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(NOTE 3).................................. 967,840 1,043,673 567,496 810,140
---------- ---------- ---------- ----------
Operating income............................ 359,352 338,703 263,069 314,537
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Royalty income............................ 11,171 8,062 7,833 874
Rent income (Note 6)...................... -- -- -- 18,000
Interest income........................... -- 20 -- 103
Interest expense.......................... (11,600) (9,600) (6,400) (6,400)
Equity loss in joint venture (Note 10).... -- -- -- (6,411)
---------- ---------- ---------- ----------
(429) (1,518) 1,433 6,166
---------- ---------- ---------- ----------
Income before tax benefit................... 358,923 337,185 264,502 320,703
TAX BENEFIT (NOTE 5)........................ -- -- -- 19,100
---------- ---------- ---------- ----------
NET INCOME.................................. $ 358,923 $ 337,185 $ 264,502 $ 339,803
========== ========== ========== ==========
PRO FORMA
Historical income before taxes on
income................................. $ 358,923 $ 337,185 $ 264,502 $ 320,703
Pro forma taxes on income (Note 5)........ 140,800 132,100 103,700 126,000
---------- ---------- ---------- ----------
Pro Forma Net Income........................ $ 218,123 $ 205,085 $ 160,802 $ 194,703
========== ========== ========== ==========
Pro Forma Net Income Per Share.............. $ 0.18 $ 0.17 $ 0.13 $ 0.16
========== ========== ========== ==========
Weighted Average Common Stock............... 1,225,000 1,225,000 1,225,000 1,225,000
========== ========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE> 44

FUNDEX GAMES, LTD.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994................ 1,150,000 $1,150 $ 100 $ 237,487 $ 238,737
Distribution to stockholders.......... -- -- -- (79,212) (79,212)
Net income, for the year ended 1994... -- -- -- 358,923 358,923
--------- ------ ---------- --------- ----------
BALANCE, December 31, 1994.............. 1,150,000 1,150 100 517,198 518,448
Distribution to stockholders.......... -- -- -- (271,800) (271,800)
Capital contributions................. -- -- 60,000 -- 60,000
Net income, for the year ended 1995... -- -- -- 337,185 337,185
--------- ------ ---------- --------- ----------
BALANCE, December 31, 1995.............. 1,150,000 1,150 60,100 582,583 643,833
Period ended August 31, 1996 (Unaudited)
Distribution to stockholders.......... -- -- -- (238,300) (238,300)
Net income, for the eight months ended
August 31, 1996.................... -- -- -- 339,803 339,803
Reclassification of previously
undistributed S earnings to paid-in
capital............................ -- -- 684,086 (684,086) --
Issuance of 75,000 shares and 75,000
warrants to acquire joint venture
(Note 10).......................... 75,000 75 394,800 -- 394,875
--------- ------ ---------- --------- ----------
BALANCE, August 31, 1996 (Unaudited).... 1,225,000 $1,225 $1,138,986 $ -- $1,140,211
========= ====== ========== ========= ==========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE> 45

FUNDEX GAMES, LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
EIGHT MONTHS EIGHT MONTHS
ENDED ENDED
YEAR ENDED YEAR ENDED AUGUST 31, AUGUST 31,
DECEMBER 31, DECEMBER 31, 1996 1995
1994 1995 ------------ ------------
------------ ------------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................ $ 358,923 $ 337,185 $ 264,502 $ 339,803
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities
Depreciation........................... 14,865 23,315 13,771 19,421
Loss on joint venture.................. -- -- -- 6,411
Deferred tax asset..................... -- -- -- (19,100)
Deferred rent.......................... -- -- -- 14,828
Changes in assets and liabilities
(Increase) decrease in accounts
receivable........................ (370,607) 114,490 (140,888) (686,511)
Increase in inventories.............. (113,978) (219,405) (202,555) (333,463)
(Increase) decrease in prepaid
expenses and other assets......... (58,132) 24,997 13,048 (98,185)
Increase in accounts payable......... 105,846 52,448 125,579 371,739
Increase (decrease) in accrued
liabilities....................... 151,651 11,253 (53,855) 224,302
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities................................ 88,568 344,283 19,602 (160,755)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in joint venture............... -- -- -- (19,000)
Capital expenditures...................... (35,938) (84,179) (17,957) (35,638)
Cash acquired in acquisition.............. -- -- -- 1,508
--------- --------- --------- ---------
Net cash used in investing activities....... (35,938) (84,179) (17,957) (53,130)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable................ -- -- -- 313,000
Advances to stockholder................... (1,000) -- -- (700)
Repayment of stockholder loans............ (27,787) -- -- --
Capital contribution...................... -- 60,000 60,000 --
Distribution to stockholders.............. (79,212) (271,800) (66,200) (42,300)
--------- --------- --------- ---------
Net cash (used in) provided by financing
activities................................ $ (107,999) $ (211,800) $ (6,200) $ 270,000
--------- --------- --------- ---------
NET (DECREASE) INCREASE IN CASH............. (55,369) 48,304 (4,555) 56,115
CASH, at beginning of period................ 76,701 21,332 21,332 69,636
--------- --------- --------- ---------
CASH, at end of period...................... $ 21,332 $ 69,636 $ 16,777 $ 125,751
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest.................... $ 9,200 $ 7,200 $ 7,200 $ 4,800
========= ========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Distribution payable to stockholders...... $ -- $ -- $ -- $ 196,000
========= ========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES
Fundex acquired the remaining 50% of a
joint venture in August 1996 for 75,000
shares of common stock and 75,000
warrants
Fair values of tangible assets
acquired............................. $ -- $ -- $ -- $ 12,088
Intangible assets acquired............. -- -- -- 382,787
--------- --------- --------- ---------
Total consideration............... $ -- $ -- $ -- $ 394,875
========= ========= ========= =========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE> 46

FUNDEX GAMES, LTD.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)

1. SUMMARY OF ACCOUNTING POLICIES

BUSINESS

Fundex Games, Ltd. (the "Company") (formerly Third Quarter Corporation)
develops, manufactures (through subcontractors), markets and sells games and
toys nationwide through discount retailers, specialty toy retailers, toy
wholesalers, drug and grocery retailers and certain catalog and specialty
accounts from its Indianapolis, Indiana facility. The Company's principal
products include card games, children's board games, skill and action games,
family games, puzzles and spring and summer toys. The Company's products are
manufactured to the Company's specifications by manufacturers based in the
United States, Taiwan, Indonesia and China.

INTERIM FINANCIAL STATEMENTS

The financial information at August 31, 1996 and for the eight months ended
August 31, 1995 and 1996 is unaudited. In the opinion of management, such
information contains all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the results of operations for
such periods. Results for the eight months ended August 31, 1996 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1996.

ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the financial statements. Actual results could differ
from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
The Company primarily provides credit, in the normal course of business, to its
customers. The Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses, if necessary.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.

F-7
<PAGE> 47

FUNDEX GAMES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)

MACHINERY AND EQUIPMENT

Machinery and equipment are carried at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures................................................. 7
Machinery and equipment................................................ 3-5
Tools and dies......................................................... 3
</TABLE>

Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property.

INCOME TAXES

The Company, with the consent of its shareholders, elected under the
Internal Revenue Code to be an S corporation until August 28, 1996. In lieu of
corporation income taxes, the shareholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in the
financial statements prior to August 28, 1996. As of August 28, 1996 the Company
became a C corporation. At that time a deferred tax asset was recorded for
existing temporary differences and the remaining undistributed S corporation
earnings were reclassified to additional paid-in capital. The Company recognizes
deferred tax assets for the expected future tax consequences of temporary
differences between the tax basis and financial reporting basis of certain
assets based upon currently enacted tax rates expected to be in effect when such
amounts are realized.

Pro forma adjustments are presented to reflect a provision for income taxes
based upon pro forma income before taxes as if the Company had not been an S
corporation for all periods presented (Note 5).

NET INCOME PER SHARE

Pro forma net income per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during each year
after giving effect to the 1,000-to-1 stock split with the Company's
reincorporation in Nevada and the 15% stock dividend effected in August 1996
described in Note 7.

Common stock equivalents, pursuant to Securities and Exchange Commission
Staff Accounting Bulletins, are common and common stock equivalents issued (or
stock option and warrant grants) at prices below the anticipated public offering
price during the twelve-month period prior to the proposed initial public
offering. They have been included in the calculation as if they were outstanding
for all periods.

Historical net income per share is not presented because such data is not
meaningful.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective for fiscal years beginning after December 15, 1995, Statement of
Financial Accounting Standards Number 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("Statement 121")
was adopted by the Financial Accounting Standards Board ("FASB"). The adoption
by the Company of Statement 121 is not expected to have a materially adverse
effect on the Company's financial condition or results of operations.

In December 1995, FASB issued Statement of Financial Accounting Standards
Number 123, "Accounting for Stock-Based Compensation." This standard encourages
a new method of recognizing stock-based compensation expense using an option
pricing model measurement of the estimated fair value of employee

F-8
<PAGE> 48

FUNDEX GAMES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)

stock options. Alternatively, companies may choose to retain the current
approach set forth in Accounting Principles Board Opinion Number 25, "Accounting
for Stock Issued to Employees," and provide expanded footnote disclosure as to
what the effects of utilizing the option pricing model measurement would have
been. Statement 123 is effective for fiscal years beginning in 1996. The Company
does not plan to use the option pricing model measurement of Statement 123 and
will provide the required footnote disclosure.

2. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1995 1996
------------ ----------
<S> <C> <C>
Raw materials............................................. $315,877 $ 466,249
Finished goods............................................ 271,237 454,328
-------- --------
$587,114 $ 920,577
======== ========
</TABLE>

3. ROYALTIES

The Company's products are generally acquired by the Company from others or
developed for the Company by unaffiliated third parties. If the Company accepts
and develops a third party's concept for a new game, it generally pays a royalty
to the inventor on games sold which were developed from the concept, often with
a commitment to manufacture and sell a minimum number. Royalties paid to the
inventors range from 1% to 6% of the wholesale sales price for each unit sold by
the Company. Royalty expense was $145,405 and $148,126 for the years ended
December 31, 1994 and 1995, respectively, and $81,650 and $112,580 for the eight
months ended August 31, 1995 and 1996, respectively. The Company may pay advance
royalties to an inventor on products where a significant amount of development
has been done by the inventor. At December 31, 1995 and August 31, 1996 advance
royalties were $41,527 and $28,279, respectively.

4. LICENSE AGREEMENTS

The two principal stockholders of the Company own the exclusive worldwide
rights to manufacture, market and distribute the card game Phase 10, a component
of the Company's principal product line. The stockholders have assigned such
rights to the Company with respect to the United States only.

On August 31, 1996, the principal stockholders contributed the worldwide
rights to manufacture, market and distribute Phase 10 to the Company. The rights
have been valued at carryover basis from the stockholders.

During 1996 the Company entered into an exclusive agreement with Hollywood
Ventures Corporation ("HVC") for certain properties and characters associated
with "The Big Comfy Couch" for use on board games, paperboard puzzles and wooden
puzzles. Shipment of these products began in July 1996. Under the terms of the
license, the Company has the exclusive rights for the above products through
December 31, 1997.

The Company has the right to renew the agreement for two additional years
provided the Company meets certain minimum royalty requirements. The Company has
agreed to pay the licensor royalties in the amount of 8% of the sales of the
products and has guaranteed a minimum of $150,000 in royalties during the
initial license term. The Company has made a $25,000 advance payment to the
licensor and this amount is included in prepaid expenses net of $6,685 for
royalties due in the accompanying balance sheet at August 31, 1996.

The Company has entered into an additional exclusive agreement with HVC for
the use of The Big Comfy Couch name and logo on an inflatable couch to be
functional as furniture for children. Shipments of

F-9
<PAGE> 49

FUNDEX GAMES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)

this product should begin in the fourth quarter of 1996. Under the terms of this
license the Company has exclusive rights for such product through December 31,
1998. The Company has the right to renew the agreement for two additional years
provided the Company generates sales which produce royalties to HVC of at least
$200,000. The Company has agreed to pay HVC royalties in the amount of 8% of
sales and has guaranteed a minimum of $40,000 in royalties. This license applies
to the United States and Canada. The Company has made a $10,000 advance payment
to the licensor and this amount is included in prepaid expenses in the
accompanying balance sheet at August 31, 1996.

5. TAXES ON INCOME

With the consent of its stockholders, the Company elected to be taxed as an
S corporation pursuant to the Internal Revenue Code through August 28, 1996.
Under this arrangement, the stockholders will include the taxable income of the
Company in their individual tax returns.

The pro forma provision for income taxes represents the estimated income
taxes that would have been reported had the Company been subject to income taxes
and is comprised of the following:

<TABLE>
<CAPTION>
EIGHT EIGHT
MONTHS MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, AUGUST 31,
1994 1995 1995 1996
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Current
Federal....................................... $118,500 $109,300 $ 82,700 $ 104,500
State......................................... 30,300 28,000 21,000 27,400
-------- -------- -------- --------
148,800 137,300 103,700 131,900
-------- -------- -------- --------
Deferred........................................ (8,000) (5,200) -- (5,900)
-------- -------- -------- --------
Pro forma taxes on income....................... $140,800 $132,100 $ 103,700 $ 126,000
-------- -------- -------- --------
</TABLE>

The pro forma provision for income taxes differs from the amounts computed
by applying federal statutory rates to the pro forma income before taxes due to
the following:

<TABLE>
<CAPTION>
EIGHT EIGHT
MONTHS MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, AUGUST 31,
1994 1995 1995 1996
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Provision for federal income taxes at the
statutory rate................................ $122,000 $114,600 $ 90,000 $ 109,000
State income taxes (net of federal benefit)..... 18,800 17,500 13,700 17,000
-------- -------- -------- --------
$140,800 $132,100 $ 103,700 $ 126,000
======== ======== ======== ========
</TABLE>

As of August 28, 1996, the Company became a C Corporation. At that time a
deferred tax asset of $19,100 was recorded for existing temporary differences.

F-10
<PAGE> 50

FUNDEX GAMES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)

The components of the deferred income tax asset at August 31, 1996 are as
follows:

<TABLE>
<S> <C>
Allowance for doubtful accounts..................................... $ 7,000
Inventory adjustments............................................... 6,200
Other............................................................... 5,900
-------
$19,100
=======
</TABLE>

Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements.

6. LEASES

The Company leases its industrial and office facilities in Indianapolis,
Indiana under an operating lease that expires December 31, 1996. In addition
beginning January 1, 1996, the Company leased a showroom and office space in New
York, New York under an operating lease that expires April 30, 2006. Rental
payments under this lease did not begin until July 1, 1996. Generally accepted
accounting principles require total minimum rental payments to be recognized as
rent expense on a straight-line basis over the term of the lease. Accordingly,
total rental expense under these leases was $24,303 and $36,316 for the years
ended December 31, 1994 and 1995, respectively and $22,744 and $48,250 for the
eight months ended August 31, 1995 and 1996, respectively. The excess of such
charges over amounts required to be paid under the lease agreement is carried as
a noncurrent liability on the Company's balance sheet.

Minimum future rental payments under these leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------------------------------------------------
<S> <C>
1996.......................................................... $ 39,756
1997.......................................................... 24,480
1998.......................................................... 24,480
1999.......................................................... 24,480
2000.......................................................... 35,700
Thereafter.................................................... 190,400
--------
$339,296
========
</TABLE>

During 1996 the Company sublet its New York showroom for a one-month period
for $18,000.

7. STOCK SPLIT AND DIVIDEND

In August 1996, the Company was reincorporated in the State of Nevada by
establishing a new Nevada corporation and merging the Indiana corporation into
the Nevada corporation. In connection with the merger, the name of the Company
was changed from Third Quarter Corporation to Fundex Games, Ltd. In addition,
the Company accomplished a 1,000-for-1 stock split of the Company's common stock
effective as of the date of the merger. Also, in August the Company effected a
15% stock dividend. All share and per share data has been restated to reflect
the stock split and dividend.

8. STOCK OPTION PLANS

The Company's board of directors and stockholders adopted the 1996 Employee
Stock Option Plan and the 1996 Stock Plan for Non-Employee Directors (the
"Plans") in September 1996. The Plans permit the granting of awards to
employees, directors and independent contractors in the form of stock options.
Options

F-11
<PAGE> 51

FUNDEX GAMES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)

are designated at the time of grant as Incentive Stock Options intended to
qualify under Section 422 of the Internal Revenue Code or Non-Qualified Options
which do not qualify. A total of 300,000 shares of the Company's common stock
have been reserved pursuant to the Plans.

9. NOTES PAYABLE

(a) In July 1996, the Company obtained a credit facility from an outside
group of investors to provide up to $500,000 in bridge financing, at an interest
rate of 10% per annum. The repayment terms of the debt are either when the
Company's proposed public offering goes effective or one-half in July 1997 and
the balance in July 1998. As of August 31, 1996, $313,000 of the $500,000 had
been drawn down.

(b) In 1992, the Company borrowed $40,000 from an individual, to be repaid
on April 15, 1993. The note has been renewed annually on April 15. The Company
is paying interest of 2% of the principal per month. The Company intends to
repay the note with the proceeds from the offering (Note 12).

10. INVESTMENT IN JOINT VENTURE

In December 1995, the Company entered into a joint venture with a
partnership for the development, design and sale of new products. The venture,
which was 50% owned by the Company, did not commence operations until 1996.
Through August 27, 1996, the joint venture was in the development stage and did
not have any revenue. The Company's share of the venture's operations was $6,411
and is included in the caption "other income (expense)" for the eight months
ended August 31, 1996.

On August 28, 1996, the Company purchased the remaining 50% of the joint
venture which consisted primarily of tooling costs and the rights to four fully
developed games. The consideration paid was 75,000 shares of the Company's stock
and 75,000 warrants to purchase stock at 120% of the proposed public offering
price (Note 12). The value assigned to the stock and the warrants was
approximately 75% of the proposed public offering price ($5.20 and $.065,
respectively). The cost in excess of the tangible assets acquired ($382,787)
will be amortized over 60 months.

11. RETIREMENT PLAN

In 1995, the Company established a contributory salary reduction simplified
pension plan pursuant to Section 408(k) of the Internal Revenue Code covering
all its employees. Employer contributions to the plan are discretionary. Also,
in 1994, the Company established a Money Purchase Plan and Trust. This plan
provides for contributions by the Company equal to 10% of eligible wages.

The amounts charged against operations were $68,792, $45,861 and $61,081
for the year ended December 31, 1995 and the eight months ended August 31, 1995
and 1996, respectively.

12. PROPOSED PUBLIC OFFERING

In July 1996, the Company signed a letter of intent for an initial public
offering of its common stock. The offering is expected to be effective in
November 1996. Fees, costs and expenses related to the proposed public offering
are capitalized and will be charged against the proceeds therefrom. If the
proposed offering is not consummated, the deferred costs will be charged to
expense.

13. DISTRIBUTION PAYABLE TO STOCKHOLDERS

The Company intends to distribute to the current stockholders, prior to the
date of this Prospectus, an amount equal to 60% of the Company's 1996 net income
allocable to the S corporation period. The Company has recorded a distribution
payable of $196,000 at August 31, 1996.

F-12
<PAGE> 52

FUNDEX GAMES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)

14. CUSTOMER AND PRODUCT CONCENTRATION

During the year ended December 31, 1994, sales to three customers accounted
for 22%, 12% and 11% of revenues. During the year ended December 31, 1995, sales
to two customers accounted for 19% and 14% of revenues. During the eight months
ended August 31, 1995 and 1996, sales to one customer accounted for 18% and 25%,
respectively, of revenues.

The Company derived 50% and 45% of net sales for the years ended December
31, 1994 and 1995, respectively, and 42% and 40% of net sales for the eight
months ended August 31, 1995 and 1996, respectively, from its Phase 10 product
line.

F-13
<PAGE> 53

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

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 2
Risk Factors.......................... 5
Use of Proceeds....................... 10
Dilution.............................. 11
Dividend Policy....................... 11
Capitalization........................ 12
Selected Financial Data............... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 18
Management............................ 24
Principal Stockholders................ 27
Certain Relationships and Related
Transactions........................ 28
Description of Securities............. 29
Shares Eligible for Future Sale....... 32
Underwriting.......................... 34
Legal Matters......................... 35
Experts............................... 36
Additional Information................ 36
Financial Statements.................. F-1
</TABLE>

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------

1,000,000 SHARES OF
COMMON STOCK
AND
1,000,000 REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS

(INITIALLY SHARES OF COMMON STOCK AND WARRANTS

MAY ONLY BE PURCHASED TOGETHER ON THE BASIS OF

ONE SHARE OF COMMON STOCK AND ONE WARRANT,

BUT WILL TRADE SEPARATELY IMMEDIATELY AFTER THE

OFFERING IS COMPLETED)
[LOGO]
--------------------

PROSPECTUS
--------------------
NATIONAL SECURITIES CORPORATION

NOVEMBER 18, 1996

------------------------------------------------------
------------------------------------------------------
<PAGE> 54

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article Eleven of the Company's Articles of Incorporation limits the
liability of the Company's directors and officers. It provides that a director
or officer of the Company will not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director or
officer, except for liability (i) for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law or (ii) for the
payment of dividends in violation of Section 78.300 of the Nevada General
Corporation Law.

The Company's Articles of Incorporation limit the personal liability of
directors to the fullest extent permitted by Nevada law. Nevada law provides
that directors or officers of a corporation will not be personally liable for
damages for breach of their fiduciary duties as directors or officers, except
liability for (i) acts or omissions which involve intentional misconduct, fraud
or a knowing violation of law or (ii) unlawful payments of dividends. Such
limitation of liability does not apply to liabilities arising under the federal
securities laws and does not affect the availability of equitable remedies such
as injunctive relief or rescission. In addition, the Company's Articles of
Incorporation provides that the Company shall to the fullest extent permitted by
Nevada law, indemnify any and all persons whom it shall have the power to
indemnify under Nevada law from and against any and all expenses, liabilities or
other matters referred to or covered by Nevada law. This indemnification is in
addition to any other rights of indemnification to which such persons may be
entitled under the Company's by-laws, any agreement or notice of shareholders or
disinterested directors.

The Company's By-laws provide that the Company shall indemnify its
directors, and officers, employees and other agents for certain expenses
(including attorneys' fees), judgments, fines, and settlement amounts incurred
by any such person in any action or proceeding, including any action by or in
the right of the Company, arising out of such person's services as a director,
officer, employee or agent of the Company if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best
interests of the Company or any other company or enterprise to which such person
provides services at the request of the Company. The Company's By-laws also
permit it to secure insurance on behalf of any director, officer, employee or
other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the By-laws would permit indemnification.

At present there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification. The Company
believes that the indemnification provisions in its Article of Incorporation and
By-laws are necessary to attract and retain qualified persons as directors and
officers. The Company does not have any separate indemnification agreements with
its directors or officers.

The Company's By-laws further provide that the Board of Directors retains
discretion, in each instance, to decide whether indemnification is appropriate.
The indemnification provided thereunder shall not be deemed exclusive of any
other rights to indemnification.

The above discussion of the Company's Articles of Incorporation, its
By-laws and Nevada law is not intended to be exhaustive and is qualified in its
entirety by such Articles, By-laws and statute.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses (other than underwriting
discounts and commissions and the Representative's non-accountable expense
allowance) expected to be incurred in connection with the Offering

S-1
<PAGE> 55

described in this Registration Statement. All amounts are estimated except the
SEC Registration Fee and the NASD Fee.

<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 7,662.74
NASD Fee......................................................... 3,028.70
American Stock Exchange Listing Fee.............................. 32,500.00
Printing and Engraving Costs..................................... 50,000.00
Accounting Fees and Expenses..................................... 75,000.00
Legal Fees and Expenses.......................................... 150,000.00
Blue Sky Fees and Expenses....................................... 20,000.00
Transfer Agent and Registrar Fees and Expenses................... 7,500.00
Miscellaneous.................................................... 49,808.56
-----------
Total............................................................ $395,500.00
</TABLE>

All of the listed expenses of this Offering will be paid by the Company.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

On August 30, 1996 the Company issued 75,000 shares of Common Stock and
warrants to purchase 75,000 shares of Common Stock to Toy Paradise Partnership,
an Illinois general partnership. The shares were issued in exchange for a fifty
percent (50%) interest in Toy Stragem, LLC, a joint venture in which the Company
owned the remaining fifty percent (50%) interest. The transaction was
accomplished without an underwriter. The Company relied upon the exemption of
Section 4(2) of the Securities Act for such transaction.

ITEM 27. EXHIBITS.

See Exhibit Index which is incorporated herein by reference.

ITEM 28. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the provisions
described in Item 24, 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 of 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 Securities Act and will be governed by the final adjudication
of such issue.

The undersigned Registrant hereby undertakes that it will:

(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and

(iii) Include any additional or changed material information on the
plan of dissolution.

S-2
<PAGE> 56

(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the Offering of the securities at that time to be the initial bona
fide Offering.

(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.

The undersigned Registrant hereby undertakes that:

For purposes of determining any liability under the Securities Act, the
Registrant will treat 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 under Rule 424(b)(1), or (4), or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declares it effective.

For purposes of determining any liability under the Securities Act, the
Registrant will treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in this
registration statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.

The Registrant will provide to the underwriters at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.

S-3
<PAGE> 57

SIGNATURES

In accordance with 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 for filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, in Washington, D.C., on
November 18, 1996.

FUNDEX GAMES, LTD.

By: /s/ CARL E. VOIGT, IV
------------------------------------
Carl E. Voigt, IV
President

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the following
capacities on November 18, 1996.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Carl E. Voigt, IV and Carl E. Voigt, III,
and each of them, his attorneys-in-fact, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same Offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ------------------------------------------------
<C> <S>
/s/ CARL E. VOIGT, IV President
- ---------------------------------------- (Principal Executive Officer)
Carl E. Voigt, IV

/s/ CARL E. VOIGT, III Executive Vice President
- ----------------------------------------
Carl E. Voigt, III

/s/ RICHARD K. BOWDEN (Principal Financial and Accounting Officer)
- ----------------------------------------
Richard K. Bowden

/s/ WILLIAM H. PROPHATER* Director
- ----------------------------------------
William H. Prophater

/s/ DENNIS J. WEIDENAAR* Director
- ----------------------------------------
Dennis J. Weidenaar

/s/ SHELDON DROBNY* Director
- ----------------------------------------
Sheldon Drobny

*By: /s/ CARL E. VOIGT, IV
- ----------------------------------------
Carl E. Voigt, IV
attorney in fact
</TABLE>

S-4
<PAGE> 58

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE PAGE
- ------- ------------------------------------------------------------------------------ ----
<C> <S> <C>
1.1 Form of Underwriting Agreement................................................
2.1 Plan of Merger................................................................
3.1 Articles of Incorporation.....................................................
3.2 By-Laws of the Company........................................................
4.1 Form of Common Stock Certificate..............................................
4.2 Form of Representatives' Warrant Agreement between the Company and National
Securities Corporation, as representative of the several Underwriters (the
"Representatives"), including Form of Representatives' Warrant................
4.3 Form of Warrant Agreement between the Company, the Representative and American
Stock Transfer and Trust Company, including form of Warrant Certificate.......
4.4 Warrant Agreement by and between the Company and Toy Paradise Partnership,
including Form of Warrant Certificate.........................................
5.1 Opinion of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.*........
10.1 Lease dated 11/21/95 by and between 200 Fifth Avenue Associates and the
Company.......................................................................
10.2 Lease dated 3/1/94 by and between the Company and Patrick & Corinne Breese,
Chester & Veda Gray...........................................................
10.3 License Agreement dated 11/1/95 by and between the Company and Hollywood
Ventures Corporation..........................................................
10.4 License Agreement dated 6/1/96 by and between the Company and Hollywood
Ventures Corporation..........................................................
10.5 Agreement dated 12/18/86 between Carl E. Voigt, III, Carl E. Voigt, IV,
Kenneth Johnson and K&K International, and Addendum thereto...................
10.6 Assignment of Intellectual Property Rights dated 8/1/96 among Carl E. Voigt,
III, Carl E. Voigt, IV, and the Company.......................................
10.7 Assignment of Intellectual Property Rights dated 9/1/96 among Carl E. Voigt,
III, Carl E. Voigt, IV, and the Company.......................................
10.8 Agreement dated May 21, 1993 between the Company and Random Games, Inc........
10.9 Agreement dated August 27, 1996 by and between the Company, Chip Voigt, Pete
Voigt, and Toy Paradise Partnership...........................................
10.10 Security Agreement dated July 31, 1996 between the Company and Paradigm
Venture Investors, LLC as agent...............................................
10.11 Form of Secured Debenture between the Company and each Holder of the
Debenture.....................................................................
10.12 Fundex Games, Ltd. 1996 Employee Stock Option Plan............................
10.13 Fundex Games, Ltd. 1996 Stock Option Plan for Non-Employee Directors..........
10.14 Simplified Employee Pension Plan dated as of 2/8/95...........................
10.15 Money Purchase Pension Plan and Trust dated as of 12/28/94....................
10.16 Letter of Intent from NBD Bank, N.A. with respect to Credit Facility*.........
23.1 Consent of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
(included as part of Exhibit 5.1)*............................................
23.2 Consent of BDO Seidman, LLP...................................................
24.1 Power of Attorney (included on page S-4 of the Registration Statement of Form
SB-2).........................................................................
</TABLE>

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

* Filed with Amendment No. 1

<PAGE> 1

(312) 621-1496
December ___, 1996

National Securities Corporation
As Representative of the
several Underwriters
c/o National Securities Corporation
875 North Michigan Avenue, Suite 1560
Chicago, IL 60611

Ladies and Gentlemen:

We are counsel for Fundex Games, Ltd. (the "Company") and have represented
the Company in connection with the sale to you and the other Underwriters named
in Schedule A (the "Underwriters") to that certain Underwriting Agreement dated
December ___, 1996 between the Company and you, as representative of such
Underwriters, of an aggregate of 1,000,000 shares of the Company's common
stock, $0.001 par value (the "Common Stock") and 1,000,000 Redeemable Common
Stock Purchase Warrants, and up to an additional 150,000 shares of Common Stock
and up to 150,000 Redeemable Common Stock Purchase Warrants pursuant to an
overallotment option. The Company is also issuing to you 100,000 warrants
(the "Representative Warrants"). All of the shares of Common Stock to be
issued pursuant to the Underwriting Agreement are referred to as the "Shares."
All of the Securities to be issued pursuant to the Underwriting Agreement are
referred to as the "Securities." Capitalized terms used herein and not
otherwise defined herein have the meanings ascribed thereto in the Underwriting
Agreement.

As counsel for the Company, we have examined originals, or copies certified
or otherwise identified to our satisfaction, of such documents, corporate
records, and other instruments as we have deemed necessary or appropriate for
the purposes of this opinion, including: (a) the Articles of Incorporation, as
amended; (b) the By-Laws of the Company, as amended; (c) various corporate
records and proceedings relating to the organization of the

<PAGE> 2

National Securities Corporation
As Representative of the
several Underwriters
December ___, 1996
Page 2

Company and the issuance of the Shares; and (d) a specimen certificate
representing the Shares.

Based on the foregoing, we are of the opinion that the Shares and
Securities will, when delivered and sold in accordance with the Underwriting
Agreement, be duly authorized and validly issued and be fully-paid and
non-assessable. We are furnishing this opinion solely for the benefit of the
Company. This opinion may not be relied upon by any other person or for any
other purpose or used, circulated, quoted or otherwise referred to for any
other purpose.

We consent to the use of this opinion as an Exhibit to the Registration
Statement, and we consent to the reference to our firm under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.

We express no opinion as to any laws other than the laws of the State of
Nevada and, to the extent applicable, of the United States.

This opinion is (a) limited to matters stated herein and no opinion may be
inferred beyond the matters expressly stated, (b) given as of the date hereof
and with the express understanding that we have no obligation to advise you or
any of your successors or assigns of changes in law or fact subsequent to the
date hereof, even though such changes may affect the opinions expressed herein,
and (c) rendered to you solely in connection with the subject transaction and
may not be relied upon by you or any other person for any other purpose.

Very truly yours

MUCH SHELIST FREED DENENBERG
AMENT BELL & RUBENSTEIN, P.C.

By:
---------------------------
Steven Schwartz

SS:rl

<PAGE> 1

NBD BANK, N.A.
ONE INDIANA SQUARE, SUITE 322
INDIANAPOLIS, IN 46266-0322

JUDY K. WOLF
VICE PRESIDENT
317-266-5189
317-266-7859 (FAX)

November 13, 1996
Chip Voigt
Fundex Games, Ltd.
P.O. Box 22128
Indianapolis, IN 46222

Dear Chip:

I am pleased to advise you that NBD Bank, N.A. ("NBD") has approved a request
for a $4,000,000 working capital facility to Fundex Games, Ltd. ("FUNDEX")
subject to the following terms and conditions:

CREDIT FACILITY

$4,000,000 Line of Credit to include issuance of Commercial Letters of Credit,
Stand-by Letters of Credit and Bankers Acceptances not to exceed $2,000,000.

PURPOSE: To fund working capital needs and provide letters of credit for
product acquisition.

PRICING: LINE OF CREDIT
At Borrower's Option subject to performance:

Total Liabilities Interest Rate LIBOR Option
----------------- ----------------------- ---------------
<S> <C> <C>
EBITDA
Over 4.0:1.0 Prime + 1/4% LIBOR + 275 bps
Between 2.0:to 3.9:1.0 Prime 1/8% LIBOR + 250 bps
Under 2.0:1.0 Prime LIBOR + 225 bps
</TABLE>

(1) Total Liabilities to include capitalized lease
obligations and outstanding commercial letters of credit and
stand-by letters of credit.

(2) EBITDA defined as operating income before
interest expense, taxes plus non-cash expenses including
depreciation and amortization expenses.

(3) Prime rate will be NBD Bank Prime Rate, subject to change
daily.

<PAGE> 2

(4) LIBOR rate option will apply to adjusted LIBOR
(30, 60, or 90 day option)plus the applicable margin. Advances
to be in an amount not less than $500,000, and in $100,000
increments thereof. The maximum number of notes outstanding at
any one time will not exceed five (5) notes. LIBOR rates are
locked in for period specified. No prepayment on LIBOR based
advance.

(5) CALCULATION: To be derived from a rolling four
quarters beginning with the most recent quarter ended. The
adjusted rate will go into effect at the beginning of the
quarter following the reporting date. For example, at the end
of first quarter ended 3/31/97, the T/L to EBITDA is 1.8:1.0.
The financial information (10Q) is received May 15th. The rate
would be Prime or LIBOR plus 225 basis points for new advances
beginning 7/1/97.

PRICING: COMMERCIAL LETTERS OF CREDIT (C/L/CA)
1/8% at issuance, 1/8% at draw.

STAND-BY LETTERS OF CREDIT (S/L/CS)
Standard issuance fees plus 1% per annum.

BANKERS ACCEPTANCES (BAS)
Standard issuance fees plus 1.5% per annum.

FEE: 1/2% of Commitment amount ($20,000 to be paid $10,000 upon
acceptance and $10,000 at closing.) Payment of all out of pocket
expenses to include all legal expenses and Initial field audit
expense (not to exceed $500).

MATURITY: LINE OF CREDIT:
December, 1997. (12 Months from closing date). Interest payable
monthly, outstanding principal balance due at maturity.

C/L/CS, S/L/CS & BAS
Expiring no later than one year after issuance.

BORROWING The balance outstanding at any one time will be limited to:
BASE: the lesser of $4,000,000 or 80% of ELIGIBLE ACCOUNTS RECEIVABLE and
40% of Inventory (Raw Materials and Finished Goods) not to exceed a
total Inventory reliance of $750,000, stepping up to $1,000,000 for
90 days during peak cycle.

ELIGIBLE ACCOUNTS RECEIVABLE will include accounts from
satisfactory debtors and exclude: (1) accounts over 90 days past
due. (2) accounts where 25% or more of the balance is more than 90
days from date of invoice and (3) accounts deemed ineligible by
NBD.

SECURITY: (1) First Perfected Security Interest in Accounts Receivable and
Inventory.
(2) Assignment of Key Man Life Insurance on Carl E. Voigt III in
the amount of $500,000,
(3) Assignment of Key Man Life Insurance on Carl E. Voigt IV in the
amount of $500,000.

GUARANTOR: None.

2
<PAGE> 3

PRINCIPAL COVENANTS: To be tested on a quarterly basis.

(1) Total Liabilities to Tangible Net Worth not to exceed
1.00:1.00.
(2) Tangible Net Worth not less than $5,000,000.
(3) Cash Flow Coverage Ratio not less than 1.50:1.00.
(4) Current Ratio not less than 2.00:1.00.
(5) Working Capital not less than $1,000,000.
(6) Annual 30 day Cleanup Period.
(7) Maintain primary Depository Accounts with NBD Bank.
(8) No loans or advances without NBD Bank consent.
(9) No Liens on Inventory and accounts.
(10) No mergers or acquisitions in an aggregate amount of
$1,000,000 without NBD Bank consent.
(11) No change in senior management.

TANGIBLE NET WORTH: Stockholder's Common Equity and Preferred
Stock, less Treasury Stock, Goodwill and other Intangible Assets.
CASH FLOW COVERAGE RATIO: Earnings before Interest, Taxes,
Depreciation and Amortization less Dividends divided by Annual
Principal plus Interest, Outstanding L/Cs, and Capital Leases.

SERVICING REQUIREMENTS:
(1) Annual audited financial statements and 10K, within 90
days of each fiscal year end.
(2) Quarterly 100 financial statements within 45 days of each
month end.
(3) Monthly internally prepared financial statements within 30
days of each month end.
(4) Monthly Borrowing Base Certificate within 30 days of each
month end.
(5) Monthly Accounts Receivable Aging and Listing within 30
days of each month end.

CONDITIONS PRECEDENT:
(1) Successful IPO, defined as a minimum $6/share, fully
subscribed offering grossing no less than $6,000,000 in new
capital.
(2) Satisfactory field audit.
(3) Satisfactory Due Diligence.

Please acknowledge receipt and acceptance of this commitment and return the
signed letter to me, together with a check made payable to NBD Bank, N.A. in
the amount of $10,000 on or before Friday, November 15, 1996.

Sincerely,

/s/ Judy K. Wolf

Judy K. Wolf

3
<PAGE> 4

The undersigned represents and warrants to NBD Bank, N.A. that he has full
authority to bind the Borrower to the terms and conditions of this agreement.

ACCEPTED AND APPROVED ON November ,1996.

FUNDEX GAMES, LTD.

/s/ Carl E. Voigt, IV
- -----------------------
Carl E. Voigt, IV President

/s/ Carl E. Voigt, III
- -----------------------
Carl E. Voigt, III
Executive Vice President