TOYMAX INTERNATIONAL INC, S-1/A, 1997-10-15

TOYMAX INTERNATIONAL INC
S-1/A, 1997-10-15
MISC DURABLE GOODS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997

REGISTRATION NO. 333-33409
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

TOYMAX INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 5092 11-3391335
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

125 EAST BETHPAGE ROAD
PLAINVIEW, NY 11803
(516) 391-9898
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)

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

STEVEN A. LEBENSFELD
PRESIDENT
125 EAST BETHPAGE ROAD
PLAINVIEW, NY 11803
(516) 391-9898
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Agent for Service)

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

COPIES TO:

<TABLE>
<S> <C>
JOEL M. HANDEL, ESQ. LAWRENCE B. FISHER, ESQ.
Baer Marks & Upham LLP Orrick, Herrington & Sutcliffe LLP
805 Third Avenue 666 Fifth Avenue
New York, NY 10022 New York, NY 10103
(212) 702-5700 (212) 506-5000
(212) 702-5941 (facsimile) (212) 506-5151 (facsimile)
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.

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

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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

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

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- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY FORM S-1

<TABLE>
<CAPTION>
ITEM NUMBER
IN FORM S-1 ITEM CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
1 Forepart of the Registration Statement and
Outside Front Cover Page......................... Outside Front Cover Page

2 Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover Page

3 Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors

4 Use of Proceeds.................................. Use of Proceeds

5 Determination of Offering Price.................. Front Cover Page; Underwriting

6 Dilution......................................... Dilution

7 Selling Security Holders......................... Inapplicable

8 Plan of Distribution............................. Front Cover Page; Underwriting

9 Description of Securities to be
Registered....................................... Dividend Policy; Description of Securities

10 Interests of Named Experts and Counsel........... Legal Matters; Experts

11 Information With Respect to the Registrant....... Front Cover Page; Prospectus Summary; The
Reorganization; Use of Proceeds; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Principal Stockholders; Certain
Relationships and Related Transactions;
Description of Securities; Index to Consolidated
Financial Statements; Consolidated Financial
Statements

12 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Inapplicable
</TABLE>
<PAGE>

Subject to Completion, Dated October 15, 1997

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.
<PAGE>
PROSPECTUS
DATED , 1997

2,700,000 SHARES

[LOGO]

TOYMAX INTERNATIONAL, INC.
COMMON STOCK
------------------

Toymax International, Inc. (the "Company") is hereby offering 2,700,000
shares of common stock, par value $0.01 per share (the "Common Stock"). Prior to
this offering (the "Offering"), there has been no public market for the Common
Stock and there can be no assurance that a market will develop. The Company
currently expects that the initial public offering price will be between $8.00
and $9.00 per share of Common Stock. The initial public offering price of the
Common Stock will be determined by negotiations between the Company, Fahnestock
& Co. Inc. and Wedbush Morgan Securities Inc. (the "Representatives"). For
information regarding the factors considered in determining the initial public
offering price of the Common Stock, see "Underwriting." Following the closing of
this Offering, the Company's senior management will beneficially own
approximately 58.5% of the Company's outstanding Common Stock (56.3% if the
Underwriter's over-allotment option is exercised in full). Accordingly, these
stockholders will have the ability to control the outcome of stockholder votes,
which will include the ability to elect all of the Company's directors, control
the adoption or amendment of provisions in the Company's Certificate of
Incorporation and Bylaws, and approve certain mergers and other significant
corporate transactions. See "Principal Stockholders" and "Description of
Securities." The Company's Common Stock has been approved for listing on the
Nasdaq National Market (the "NMS") under the symbol TMAX.

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON
PAGE 8 AND "DILUTION" ON PAGE 18.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE 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>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNTS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................... $ $ $
Total (3)........................... $ $ $
</TABLE>

(1) See "Underwriting" for information concerning the compensation and
indemnification of Underwriters and other information.

(2) Before deducting estimated expenses payable by the Company, including the
Representatives' non-accountable expense allowance.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 405,000 additional shares of Common Stock, on the same terms and
conditions set forth above, solely to cover over-allotments, if any. If the
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."

The shares of Common Stock are offered severally by the Underwriters subject
to prior sale when, as and if delivered to and accepted by the Underwriters and
subject to approval of certain legal matters by their counsel and certain other
conditions. The Underwriters have the right to withdraw, cancel or modify this
Offering and to reject any order in whole or in part. It is expected that
delivery of the shares of Common Stock will be made against payment therefor at
the principal offices of Fahnestock & Co. Inc., 110 Wall Street, New York, New
York 10005, on or about October , 1997.

FAHNESTOCK & CO. INC. WEDBUSH MORGAN SECURITIES
<PAGE>
[Photos of representative brand logos, products and product output of the
Company will be located here, including:

1. Brand logos--Toymax, Metal Molder, Kiln Crafts, Creepy Crawlers, Precious
Metals, Laser Challenge, Power Mites, The Original Toolmaster Workshop, Brush N'
Magic, Magic Angels, Magic Twinkles, Mosaic Magic, Talking Tina, Tattoo Graphix,
Bubble Tots, Magic Maker, Foil Art, Fuzz Art, Magic Grow and Sand Bag Pets.

2. Products--Creepy Crawlers Creature Creator Oven, Plasti-Goop compound,
Metal Molder Die Cast Factory, Precious Metals Boutique, Kiln Crafts Center and
Laser Challenge laser, vest, robot, super laser and Laser Trap.

3. Product Output--Kiln Craft clay figures, Metal Molder metal figures,
Precious Metals metal figures and Creepy Crawlers bugs.]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".

TOYMAX-REGISTERED TRADEMARK-, CREEPY CRAWLERS-REGISTERED TRADEMARK-, LASER
CHALLENGE-TM-, METAL MOLDER-TM-, PRECIOUS METALS-TM-, KILN CRAFTS-TM-, MAGIC
MAKER-REGISTERED TRADEMARK-, POWER MITES-REGISTERED TRADEMARK-, BRUSH N'
MAGIC-TM-, TOOLMASTER WORKSHOP-REGISTERED TRADEMARK-, MAGIC TWINKLES-TM-, MOSAIC
MAGIC-TM-, FOIL ART-TM-, MAGIC GROW PAINTS-TM-, FUZZ ART-TM-, SAND BAG PETS-TM-,
TALKING TINA-REGISTERED TRADEMARK-, TATTOO GRAPHIX-TM- AND BUBBLE TOTS-TM- ARE
TRADEMARKS OF TOYMAX INC.
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND OTHER FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS.
EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO
EXERCISE OF THE UNDERWRITER'S OVERALLOTMENT OPTION AND (II) HAS BEEN ADJUSTED TO
GIVE EFFECT TO THE REORGANIZATION DESCRIBED UNDER "THE REORGANIZATION" AND A
STOCK SPLIT OF 16.67 SHARES OF COMMON STOCK FOR EACH OUTSTANDING SHARE OF COMMON
STOCK EFFECTED IMMEDIATELY PRIOR TO THE DATE OF THIS PROSPECTUS. AS USED IN THIS
PROSPECTUS, UNLESS THE CONTEXT REQUIRES OTHERWISE, THE TERMS "COMPANY" AND
TOYMAX REFER TO THE TOYMAX GROUP (AS DEFINED HEREIN) AS OF DATES AND PERIODS
PRIOR TO THE CLOSING OF THE REORGANIZATION AND, THEREAFTER, COLLECTIVELY, TOYMAX
INTERNATIONAL, INC. AND ITS SUBSIDIARIES. AS USED HEREIN, THE TERM "FISCAL" OR
"FISCAL YEAR" REFERS TO THE COMPANY'S FISCAL YEAR ENDED OR ENDING MARCH 31.

THE COMPANY

The Company creates, designs and develops innovative toys, which it markets
and sells in the U.S. and throughout the world. The Company has focused on
developing and marketing children's activity toys, including Creepy
Crawlers-Registered Trademark-, Metal Molder-Registered Trademark- and Magic
Maker-Registered Trademark-, girls' toys, such as Talking
Tina-Registered Trademark-, and action toys, such as Laser Challenge-TM-, one of
FAMILY FUN magazine's Toys of the Year in 1996 and currently among the leading
selling toys in the U.S. Management believes that major strengths of the Company
include creativity in the development of new toys, such as Metal Molder, which
was named one of the top children's vacation products of 1997 by DR. TOY, and
the redevelopment and reintroduction of successful toy lines from the past, such
as Creepy Crawlers, which was named one of the top toys of 1996 by SESAME STREET
MAGAZINE.

Toymax was founded in 1990 by four experienced toy industry executives:
David Chu, the Company's Chairman, Steven Lebensfeld, its President, Harvey
Goldberg, its Executive Vice President, and Kenneth Price, its Senior Vice
President of Sales and Marketing. Since the early 1980s these executives have
worked together in managing or founding toy companies or in customer-supplier
relationships. Each individual brings particular strengths to the management
team: Mr. Chu in manufacturing, Mr. Lebensfeld in product development, and
Messrs. Goldberg and Price in sales and marketing. In addition, these executives
have built a team of knowledgeable, highly skilled management and employees
whose collective toy industry experience enhances the Company's ability to
effectively execute its business plan.

Toymax conducts its sales activities through its wholly-owned subsidiaries,
Toymax Inc. and Toymax (H.K.) Limited ("Toymax HK"). Following the closing of
the Offering, sales previously conducted through Toymax HK will be conducted
through Toymax (Bermuda) Limited. U.S. domestic sales, conducted by Toymax Inc.,
consist of sales of the Company's promotional product lines to U.S. customers
pursuant to customer purchase orders ("U.S. Domestic Sales"). Customers
purchasing products on this basis include Toys "R" Us, Kay-Bee Toys, F.A.O.
Schwarz, Wal-Mart, Kmart and Target. Sales conducted by Toymax HK ("Toymax HK
Sales") consist of sales on an FOB Hong Kong basis which are generally based on
letters of credit and which include sales of lower priced basic products to U.S.
and international retailers, including Toys "R" Us International, Lojas
Americanas (Brazil) and Blokker (Holland) and sales of the Company's promotional
product lines to approximately 40 international distributors (including Mattel
Inc. and Hasbro Inc.). The Company's products are sold in over 50 countries
around the world. In fiscal 1997, U.S. Domestic Sales constituted 70.9% of net
sales, with the balance being Toymax HK Sales.

3
<PAGE>
calendar 1996, the Company improved its operations by: (i) limiting purchasing
commitments on new products to foster increased product sell-through rates at
the retail level and to reduce inventory risks, (ii) enhancing its inventory
management system, with improved electronic data interchange tracking and sales
analysis with major retail customers, and (iii) expanding its product concept
preview process with selected retailers and distributors. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."

The Company uses a variety of methods to market its existing and new
products, such as demonstrating its products at international toy shows to many
of its current and prospective customers. In addition, the Company is able to
reach its primary audience of children on a large scale in an efficient manner
through television advertising. The Company also relies on public relations,
promotional programs and such traditional methods as in-store demonstrations and
couponing to support its sales and marketing efforts.

Toymax currently contracts for all of its manufacturing requirements. Tai
Nam Industrial Company Limited ("Tai Nam"), based in Hong Kong, serves as the
Company's purchasing agent and, through an affiliated company, Jauntiway
Investments Limited ("Jauntiway"), manufactures a majority of the Company's
products. Jauntiway is an OEM toy manufacturer with two manufacturing facilities
in southern China, including an ISO 9002 factory. Tai Nam and Jauntiway are
owned by David Chu, the Chairman and a principal stockholder of the Company. The
Company believes that these relationships give it several competitive
advantages, such as better quality control on merchandise, greater operating and
financial flexibility, and improved reliability and scheduling.

The Company's objective is to increase sales and improve profitability by
implementing the following elements of its growth strategy:

EXTEND PRODUCT LINES OF EXISTING CORE BRANDS. The Company intends to
capitalize on the success of its existing core brands by building a pipeline of
complementary products and accessories. Product line extensions under the
Company's brands are intended to provide greater sales and stability. For
example, during 1997, the Company introduced the girl's version of Metal Molder,
called Precious Metals-TM-, and added new products to its Creepy Crawlers
product line. In addition, the Company capitalized on the success of its Laser
Challenge brand with the introduction of a number of accessories, games and
products which enhance the play experience.

EXPAND INTO NEW CORE PRODUCT CATEGORIES. The Company intends to expand into
new core product categories through (i) the creation of new toys by its product
development team, (ii) the acquisition of rights to toys developed by
independent designers, (iii) the acquisition of businesses or product lines with
proven products or concepts, and (iv) the re-design and re-introduction of old
"classic" toy products in recognition of cyclical patterns in the toy industry.
For example, the Company entered the action toy category in 1996 with Laser
Challenge and recently formed Craft Expressions, Inc. to enter the adult craft
market. During the past three fiscal years, 82.7% of the Company's net sales
have been generated from internally developed toys. In addition, senior
management has been in the toy business for over two decades and has developed a
large network of free-lance toy inventors and other independent designers from
which to acquire the rights to market toys developed by these designers.
Finally, the Company intends to pursue acquisitions of toy companies and product
lines which either complement or enhance the Company's current products or allow
the Company to expand into new market segments.

EXPAND INTO TRADITIONAL SPRING TOYS. The Company recognizes the importance
of decreasing its reliance on sales made in the third and fourth quarters of the
calendar year by expanding into product categories with traditionally strong
sales in the first half of the calendar year. In the first two calendar quarters
of 1997, the Company had net sales of $22.8 million as compared to net sales of
approximately $10.1 million for the same period in 1996, primarily as a result
of the introduction of Laser Challenge. The

4
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Company plans to evaluate opportunities for new products, particularly in the
categories of action toys and water toys.

DEVELOP AND PENETRATE NEW MARKETS. The Company intends to expand the market
for its existing and new toys by increasing its penetration of international
markets and targeting the broadening demographics of toy consumers. The Company
believes that as the global economy continues to expand, significant growth
opportunities exist internationally, especially in Europe, South America and
Southeast Asia. The Company intends to capitalize on management's experience,
its established sales and distribution network and its relationships with
foreign distributors and retailers to further expand its international sales. By
marketing products globally, the Company can offer a greater diversity of
products and potentially extend product life cycles. In addition, due to the
advent of video and computer games, the demographics of toy consumers have
changed. The ages of consumers of traditional toy products has decreased, while
the market for toys incorporating sophisticated technology has extended beyond
the traditional age groups of toy consumers. The Company intends to capitalize
on the success of Laser Challenge and Metal Molder to produce products which
appeal to the broader demographic for such toys.

CONTINUE TO LICENSE RECOGNIZED BRAND NAMES AND CHARACTERS. The Company
intends to continue to license recognized brand names to enhance sales of its
product lines. Currently, the Company markets products pursuant to licensing
agreements with companies such as Disney Enterprises, Inc., Universal Studios
Licensing, Inc. and the Chevrolet Motor Division of General Motors. The Company
intends to continue to seek appropriate licenses for its existing product lines
as well as licenses which will allow the Company to expand into new product
categories.

The Company's principal offices are located at 125 East Bethpage Road,
Plainview, New York 11803. The Company's telephone number is (516) 391-9898. In
addition, the Company maintains a worldwide web site
(http://www.laserchallenge.com) on the Internet. Information contained on the
Company's web site is not a part of this prospectus and must not be relied upon
in evaluating the Company, its products or business or an investment in the
Common Stock offered hereby.

5
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THE OFFERING

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<S> <C>
Common Stock Offered by the Company.......... 2,700,000 shares

Common Stock to be Outstanding After the
Offering................................... 10,200,000 shares(1)

To repay bank indebtedness, to pay trade
payables to certain affiliates and for
working capital and general corporate
purposes, including potential acquisitions.
See "Use of Proceeds."
Use of Proceeds..............................

The Offering involves a high degree of risk
and immediate and substantial dilution.
Prospective investors should review and
consider the information set forth under
"Risk Factors."
Risk Factors.................................

Nasdaq National Market Symbol................ TMAX
</TABLE>

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(1) Does not include (i) 750,000 shares of Common Stock reserved for issuance
upon exercise of options granted (414,000 will be granted prior to
consummation of the Offering, all at an exercise price equal to at least the
initial public offering price of the Common Stock in the Offering) or which
may be granted under the Company's 1997 Stock Option Plan; and (ii) 195,750
shares of Common Stock reserved for issuance upon exercise of the
Representatives' Warrants. See "Management -- 1997 Stock Option Plan" and
"Underwriting."

6
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SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, JUNE 30,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993(1) 1994 1995 1996 1997 1996(1) 1997(1)
--------- --------- --------- --------- --------- --------- ---------

<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $ 33,393 $ 72,431 $ 70,623 $ 43,622 $ 54,683 $ 2,679 $ 7,091
Cost of goods sold............ 18,730 37,518 42,640 30,601 33,837 2,367 3,784
--------- --------- --------- --------- --------- --------- ---------
Gross profit.................. 14,663 34,913 27,983 13,021 20,846 312 3,307
Selling and administrative
expenses.................... 9,112 21,525 27,121 24,641 18,026 2,833 3,664
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)....... 5,551 13,388 862 (11,620) 2,820 (2,521) (357)
--------- --------- --------- --------- --------- --------- ---------
Other income (expense), net... (273) (225) (332) 300 228 222 (51)
Interest expense, net......... (418) (483) (460) (738) (394) (41) (131)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes and minority
interest.................... 4,860 12,680 70 (12,058) 2,654 (2,340) (539)
Provision (benefit) for income
taxes....................... 1,398 4,818 (198) (2,254) (681) (922) (152)
Net income (loss)............. $ 3,462 $ 7,862 $ 268 $ (9,804) $ 3,347 $ (1,418) $ (369)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common
share (2)................... $ .46 $ 1.05 $ .04 $ (1.31) $ .45 $ (0.19) $ (0.05)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Average common shares
outstanding (2)............. 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(3)
--------- --------------

<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................................................... $ (2,546) $ 17,940
Total assets............................................................................ 22,536 32,036
Total debt (including short term and current maturities)................................ 5,201 201
Total stockholders' equity.............................................................. 73 20,558
</TABLE>

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(1) Unaudited.

(2) See Note 1 to the "Consolidated Financial Statements."

(3) As adjusted to give effect to the Offering at an assumed offering price of
$8.50 per share and the initial application of the estimated net proceeds
therefrom. See "Use of Proceeds."

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import constitute "forward-looking
statements." Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or the industry to be materially different from
any future results, performance or achievements expressed or implied by such
forward- looking statements. Such factors include, among others, the following:
general economic and business conditions; prospects for the industry;
competition; changes in business strategy or development plans; the loss of key
personnel; the availability of capital; and other factors referenced in this
Prospectus, including, without limitation, under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and "Certain Relationships and
Related Transactions." Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the results of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.

7
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, AS WELL AS ALL THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
BEFORE PURCHASING ANY COMMON STOCK:

NO ASSURANCE OF PROFITABILITY. The Company has generated positive net
income in four of the last five fiscal years. In fiscal 1996, however, the
Company incurred net losses of $9.8 million due, in large part, to the
cancellation of orders and the failure by retailers to place re-orders during
the 1995 holiday season. As a result, the Company had to sell the excess
inventory at discounted prices which impacted both net sales and net profits.
Although management has taken steps to lessen its exposure to similar industry
and retailer developments, there can be no assurance that such losses will not
reoccur or that the Company will operate profitably in the future. Future
operating results will depend on a number of factors, including demand for the
Company's current products, the Company's ability to introduce new products,
market acceptance of new products and the general state of the economy in the
U.S. and other major markets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

CHANGING CONSUMER PREFERENCES; SUBSTANTIAL RELIANCE ON NEW PRODUCT
INTRODUCTIONS. The toy market is characterized by changing consumer preferences
and frequent new product introductions which reduce the length of product life
cycles. There can be no assurance that any of the Company's current products or
product lines will be popular with consumers for any period of time.
Furthermore, sales of the Company's existing products are expected to decline
over time and may decline at rates faster than expected. The Company's success
is dependent upon the Company's ability to enhance existing product lines and
develop new products and product lines. Historically, a significant portion of
the gross sales each year were derived from new products. The failure of the
Company's existing and new products and product lines to achieve and sustain
market acceptance and to produce acceptable margins could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business--Products" and "Business--Product Development."

RISKS ASSOCIATED WITH INVENTORY MANAGEMENT. Most of the Company's largest
retail customers utilize an electronic inventory management system to track
sales of products and rely on reorders being rapidly filled by the Company and
distributors rather than maintaining large product inventories. These types of
systems put pressure on suppliers like the Company to promptly fill customer
orders and shift some of the inventory risk from retailer to suppliers. The
Company generally places orders with manufacturers based in part on advance,
non-binding, estimates of orders from its major retail clients. Such estimates
may deviate substantially from actual orders. In the event that subsequent
orders fall short of original estimates, the Company may be left with excess
inventory. Significant excess inventory could result in price discounts and
increased inventory carrying costs for the Company. Similarly, if the Company
fails to have an adequate supply of products manufactured on a timely basis, the
Company may, as a result, lose sales opportunities. Despite the Company's
efforts to adjust its production schedule based on market activities, including
participating in electronic data interchange ("EDI") programs with its largest
retail customers, there can be no assurance that the Company will maintain
appropriate inventory levels. Such occurrences may have a material adverse
effect on the Company's financial condition and results of operations. See
"Business-- Sales and Distribution" and "--Purchasing and Manufacturing."

DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS. The Company's five largest
customers accounted for approximately 69% and 63% of the Company's net sales for
fiscal 1997 and the quarter ended June 30, 1997, respectively. Only sales to
Toys "R" Us exceeded 10% of the Company's net sales during the same periods. The
Company expects to continue to rely on a relatively small number of customers
for a significant percentage of sales for the foreseeable future. Because of the
large portion of the Company's sales to the Company's five largest customers and
the significant market share for toy sales to consumers represented by these
same customers, the loss of any one of them as a customer, or a significant
reduction

8
<PAGE>
in sales, would have a material adverse effect on the Company's financial
condition and results of operations. See "Business--Customers."

SEASONALITY AND QUARTERLY FLUCTUATIONS. The Company's sales are seasonal in
that a substantial portion of net sales is made to retailers in anticipation of
the Christmas holiday season. During fiscal 1997, approximately 66.4% of the
Company's net sales and profits were made during the Company's second and third
fiscal quarters (July through December) in connection with retail sales for the
Christmas holiday season. Adverse business or economic conditions during these
periods may adversely affect results of operations for the full year. Such
seasonality causes the Company's quarterly operating results and working capital
requirements to fluctuate. As a result of the seasonality of the Company's net
sales, the Company could incur a loss in the first quarter of each fiscal year
for the foreseeable future. The Company's financial results for a particular
quarter may not be indicative of results for an entire year, and the Company's
revenues and/or expenses will vary from quarter to quarter. In addition, in the
event that the Company's results of operations for any period are below the
expectation of market analysts and investors, the market price of the Common
Stock could be adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality" and
"Business--Seasonality."

DEPENDENCE ON LIMITED NUMBER OF PRODUCT LINES, PARTICULARLY LASER
CHALLENGE. The Company derives a substantial portion of its revenue from a
limited number of product lines. A decrease in the popularity of a particular
product line or key products within a given product line during any year could
have a material adverse effect on the Company's business, financial condition
and results of operations. Sales of the Laser Challenge, Metal Molders, Creepy
Crawlers, and Magic Maker product lines represented 71.7% and 90.0% of the
Company's revenue in fiscal 1997 and for the quarter ended June 30, 1997,
respectively. In particular, the Company relies heavily on its Laser Challenge
product line. Sales for this product line accounted for 48.6% and 74.6% of the
Company's sales in fiscal 1997 and for the quarter ended June 30, 1997,
respectively and are expected to account for a significantly greater percentage
of fiscal 1998 sales than fiscal 1997 sales. There can be no assurance that any
of these product lines will retain their historical levels of popularity or
increase in popularity. Decreased sales from any one of these product lines
without a corresponding increase in sales from other existing or newly
introduced products would have a material adverse effect on the Company's
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Products."

SALES ALLOWANCES. The Company has, in certain instances, provided sales
allowances to retailers for promotions and for purposes of reducing the levels
of inventory carried by the retailer. The Company expects that it will continue
to be required to make such accommodations in the future. Any significant
increase in the amounts of these sales allowances could have a material adverse
effect on the Company's financial condition and results of operations. See
"Business--Sales and Marketing" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RELIANCE ON SINGLE AFFILIATED MANUFACTURER AND POTENTIAL CONFLICT OF
INTEREST. During fiscal 1997 and for the quarter ended June 30, 1997, one
manufacturer, Jauntiway Investments Limited ("Jauntiway") accounted for
approximately 85% and 94%, respectively, of the Company's purchases of products.
Jauntiway and the Company's purchasing agent, Tai Nam Industrial Company Limited
("Tai Nam"), are owned by David Chu, the Chairman and a principal stockholder of
Toymax. In consideration of an agency fee equal to seven percent (7%) of the
gross invoiced value of products purchased by the Company, Tai Nam provides
various services to the Company including arranging for the manufacturing of the
Company's products based on purchase orders placed with Tai Nam by the Company.
Jauntiway manufactures a majority of such products in addition to subcontracting
certain manufacturing requirements to unaffiliated third parties. The loss of
Jauntiway, or a substantial interruption of the Company's manufacturing
arrangements with Jauntiway, could cause a delay in production of the Company's
products for delivery to its customers and could have a material adverse effect
on the Company. In addition, from time to time, Tai

9
<PAGE>
Nam has provided the Company with payment terms longer than the stated 30 day
period and Tai Nam has agreed to do so for the balance of fiscal 1998. Although
management believes that such extended terms will not be necessary after fiscal
1998, there can be no assurance that extended terms will not be necessary or
that they will be available if needed. While the Company believes that many
alternate manufacturers exist, there can be no assurance that alternate
arrangements could be provided in a timely manner on terms or with the level of
support currently provided by Tai Nam and Jauntiway to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business--Purchasing and
Manufacturing," "Principal Stockholders" and "Certain Relationships and Related
Transactions."

PARTIAL RELIANCE ON IMPORTS FROM TAIWAN. The basic raw materials used by
Jauntiway in manufacturing the Company's products are petrochemical resin
derivatives. A large portion of Jauntiway's petrochemical derivates are imported
from Taiwan via Hong Kong. Any disruption of trade between Taiwan and the PRC
may have a significant adverse impact on Jauntiway's operations and therefore
could have a significant adverse impact on the Company's results of operations.
See "Business--Purchasing and Manufacturing."

RELIANCE ON MANUFACTURERS BASED IN CHINA; TRADE RELATIONS. To date, most of
the Company's products have been manufactured by Hong Kong-based manufacturers
at facilities located in the People's Republic of China (the "PRC"). According
to reports published by the Toy Manufacturers Association ("TMA"), an industry
trade group, the PRC is the world's largest producer of toys and is the source
of a majority of toys imported into the U.S. There is uncertainty surrounding
the political and economic consolidation of Hong Kong with the PRC and the
extent to which such consolidation could disrupt business in Hong Kong or
elsewhere in the PRC. In the event of any such disruption or other political,
legal or economic change in Hong Kong or elsewhere in the PRC affecting the
Company's business, the Company could be required to seek alternative
manufacturing sources. The Company currently does not have in place plans or
arrangements for securing alternative manufacturing sources in the event that
its present relationship with Tai Nam and Jauntiway prove impracticable to
maintain, and there can be no assurance that there would be sufficient
alternative facilities to meet the increased demand for production that would
likely result from a disruption of manufacturing operations in the PRC.
Furthermore, such a shift to alternative facilities would likely result in
increased manufacturing costs and could subject the Company's products to
increased duties, tariffs or other restrictions. See "Business--Purchasing and
Manufacturing" and "Business--Tariffs and Duties."

The PRC's Most Favored Nation ("MFN") trade status must be renewed annually.
In June 1997, Congress renewed the PRC's MFN status through July 3, 1998.
Because the PRC currently has MFN status, most toys imported into the United
States from the PRC are not subject to import duties. Recently, however, the
United States and the PRC have been in disagreement over trade and politics.
There can be no assurance that in the future trade relations between the United
States and the PRC will not deteriorate, that Congress will renew the PRC's MFN
status in 1998 or that the PRC's MFN status will not be altered or revoked at
any time such that, as a result, the United States would impose duties, quotas
or other trade sanctions that would affect the cost and quantity of toys
imported from the PRC. The imposition of such duties would have a material
adverse effect on the Company's financial condition and results of operations.
See "Business--Tariffs and Duties."

RISKS INHERENT IN INTERNATIONAL OPERATIONS; INTELLECTUAL PROPERTY RISKS; AND
CURRENCY RISKS. A significant percentage of the Company's business, including
substantially all of its product manufacturing, is conducted outside of the
United States. As a result, the Company's operations are subject to various
risks such as the possibility of the loss of revenue, property or equipment due
to expropriation, nationalization, war, insurrection, terrorism or civil
disturbance, the instability of foreign economies, currency fluctuations and
devaluations, adverse tax policies and governmental activities that may limit or
disrupt markets, restrict payments or the movement of funds or goods or result
in the deprivation of contract

10
<PAGE>
rights. Additionally, the ability of the Company to compete may be adversely
affected by foreign governmental regulations that encourage or mandate the
hiring of local contractors, or by regulations that require foreign contractors
to employ citizens of, or purchase supplies from vendors in, a particular
jurisdiction. The Company is subject to taxation in a number of jurisdictions,
and the final determination of its tax liabilities involves the interpretation
of the statutes and requirements of various domestic and foreign taxing
authorities. There can be no assurance that any of these risks will not have an
adverse effect on the Company's financial condition and results of operations.

The application and enforcement of intellectual property laws in the PRC
protecting patents, trademarks and copyrights does not currently provide a level
of protection for such property equivalent to those found in more developed
countries. Because the Company's products are manufactured in the PRC, there may
be some additional risk of improper use or theft of the Company's intellectual
property, especially for use within the PRC.

Transactions in which the Company purchases goods from manufacturers are
mostly effected in Hong Kong dollars, and accordingly, fluctuations in Hong Kong
monetary rates may have an impact on the cost of such goods. Although the value
of the Hong Kong dollar has been tied to the value of the United States dollar
since the early 1980s, there can be no assurance that Hong Kong dollar will
continue to be tied to the United States dollar or that historical exchange
rates will continue to be maintained. Furthermore, appreciation of Chinese
currency values relative to the Hong Kong dollar could increase the cost to the
Company of the products manufactured in the PRC, and thereby have a negative
impact on the Company's margins and a material adverse effect on the Company's
financial condition and results of operations. The Company has not engaged in
currency hedging transactions and currently has no intention to do so. See
"Business--Purchasing and Manufacturing."

RELIANCE ON KEY PERSONNEL; PART-TIME SERVICES OF CHAIRMAN. The Company's
future success will be dependent on the continued efforts of its senior
management team which consists of David Chu, Steven Lebensfeld, Harvey Goldberg,
and Kenneth Price. These individuals will beneficially own 58.2% (70.4% if the
shares held by a trust for the benefit of Mr. Goldberg's family were included)
of the Company's outstanding shares of Common Stock following the closing of the
Offering. Mr. Chu is also an officer and director of other companies, and he is
not expected to devote to the Company's affairs more than such portion of his
business time and attention as he or the Company's Board of Directors may deem
necessary. The Company has entered into employment and non-competition
agreements with Mr. Lebensfeld, Mr. Goldberg and Mr. Price. The loss of the
services of any of these individuals could have a material adverse effect on the
Company. The Company maintains key man insurance on the lives of Messrs. Chu,
Lebensfeld and Goldberg in the amount of $1.0 million each. The Company's
success is also dependent on the Company's ability to attract and/or retain key
managerial, sales, marketing, product development and other personnel. There can
be no assurance that the Company will be successful in attracting and/or
retaining such personnel. See "Management--Employment Agreements."

RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES. As
part of its growth strategy, the Company intends to pursue acquisitions of
businesses or product lines and investments in, and strategic alliances with,
entities that complement or expand the Company's current operations or
production and marketing capabilities. Any acquisitions, investments, strategic
alliances or related efforts will be accompanied by the risks commonly
encountered in such transactions or efforts. Such risks include, among others,
the identification of appropriate candidates, the assimilation of operations and
personnel of the respective entities, the potential disruption of the Company's
ongoing business, the inability of management to capitalize on the opportunities
presented by acquisitions, investments, strategic alliances or related efforts,
the failure to successfully incorporate licensed or acquired technology and
rights into the Company's services, the inability to maintain uniform standards,
controls, procedures and policies and the impairment of relationships with
employees and customers as a result of changes in management or otherwise.
Further, to the extent that any such transaction involves operations located
outside the United States, the transaction would involve numerous risks
associated with international operations, including

11
<PAGE>
regulatory obstacles. There can be no assurance that the Company would be
successful in overcoming these risks or any other difficulties encountered with
respect to such acquisitions, investments, strategic alliances or related
efforts. See "--Risks Associated with International Operations" and "Business--
Business Strategy."

RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH. There can be no assurance that
the Company's recent growth will continue or that the Company will be able to
maintain its present level of net sales or profitability. Furthermore, future
growth, if achieved, might place a strain on the Company's management and
financial control systems, and there can be no assurance that management of the
Company would be able to manage such growth effectively. Failure to manage any
future growth experienced by the Company could have a material adverse effect on
the Company's financial condition and results of operations.

CHANGES IN THE RETAIL AND TOY INDUSTRIES. The retail industry has
periodically experienced consolidation and other ownership changes. Major
retailers in the United States and in foreign markets may in the future
consolidate, undergo restructurings or realign their affiliations which could
decrease the number of stores that sell the Company's products or increase the
ownership concentration within the retail industry. While such changes in the
retail industry to date have not had a material adverse effect on the Company's
business or financial condition, there can be no assurance as to the future
effect of any such changes. The toy industry is also experiencing a shift toward
greater consolidation of retail distribution channels, such as large specialty
toys stores and discount retailers, including Toys "R" Us, Wal-Mart, Kmart and
Target, which have increased their overall share of the retail market. This
consolidation has resulted in an increased reliance among retailers on the large
toy companies because of their financial stability and ability to support
products through advertising and promotion and to distribute products on a
national basis. Such consolidation may have a negative impact on the ability of
smaller toy companies, such as the Company, to compete. See "Business--The Toy
Industry," "--Competition" and "--Customers."

COMPETITION. The toy industry is highly competitive. Many of the Company's
competitors have longer operating histories, broader product lines and greater
financial resources and advertising budgets than the Company. In addition, the
toy industry has low barriers to entry. Competition is based primarily on the
ability to design and develop new toys, procure licenses for popular products,
characters and trademarks, and successfully market products. Many of the
Company's competitors offer similar products or alternatives to the Company's
products. The Company's products compete with other products for retail shelf
space. There can be no assurance that shelf space in retail stores will continue
to be available to support the Company's existing products or any expansion of
the Company's products and product lines. There can be no assurance that the
Company will be able to continue to compete effectively in this marketplace. See
"Business--Competition."

PROPRIETARY RIGHTS. The Company relies on patent, trademark, copyright and
trade secret protection, nondisclosure agreements and licensing arrangements to
establish, protect and enforce proprietary rights in its products. Despite the
efforts of the Company and its licensors to safeguard and maintain their
proprietary rights, there can be no assurance that the Company or its licensors
will be successful in so doing. In addition, the laws of certain foreign
countries do not protect intellectual property rights to the same extent or in
the same manner as the laws of the United States. Although the Company and its
licensors continue to implement protective measures and intend to defend their
proprietary rights vigorously, there can be no assurance that these efforts will
be successful. Furthermore, the Company cannot guarantee that it possesses all
of the rights purportedly granted under its licensing agreements and cannot
guarantee that such licensing agreements are and will be enforceable.

The Company does not believe that any of its products infringe on the
proprietary rights of third parties. However, existing or future intellectual
property claims against the Company, if proven, could have a material adverse
effect on the Company's business, financial condition and results of operations.
Although such claims could ultimately prove to be without merit, the necessary
management attention to, and legal costs associated with, litigation or other
resolution of such claims could have a material adverse

12
<PAGE>
effect on the Company's business, financial condition and results of operations.
See "Business--Product Development and Licensing" and "--Legal Proceedings."

GOVERNMENT REGULATION; PRODUCT SAFETY. The Company's operations in the
United States are subject to various laws, rules and regulations, including the
Federal Hazardous Substances Act, the Consumer Product Safety Act, the Flammable
Fabrics Act and the regulations promulgated under each such Act. Such laws
empower the United States Consumer Product Safety Commission ("CPSC") to protect
children from hazardous toys and other articles. The CPSC has the authority to
exclude from the market products that are found to be hazardous and to require a
manufacturer to repurchase such products under certain circumstances. Similar
laws and regulations exist in most countries in which the Company's products are
sold. While the Company oversees a quality control program designed to ensure
that its products comply in all material respects with such regulations, no
assurance can be made that defects will not be found in the Company's products,
resulting in product liability claims, loss of revenue, diversion of resources,
damage to the Company's reputation or increased warranty costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Government and Industry
Regulation."

Products that have been or may be developed or sold by the Company may
expose the Company to potential liability from personal injury or property
damage claims by consumers. The Company currently maintains product liability
insurance coverage in the amount of $26 million per occurrence, with a $52
million aggregate product liability policy. There can be no assurance that the
Company will be able to maintain such coverage or obtain additional coverage on
acceptable terms, or that such insurance will provide adequate coverage against
all potential claims. Moreover, even if the Company maintains adequate
insurance, any claim could divert management time and materially and adversely
affect the reputation and prospects of the Company.

HOLDING COMPANY STRUCTURE. The Company is a holding company and
substantially all of its operations are conducted through subsidiaries.
Consequently, the Company will rely principally on dividends or advances from
its subsidiaries. The ability of such subsidiaries to pay dividends is subject
to applicable local law and certain other restrictions. Future borrowings may
require collateral and/or guarantees from affiliated companies. See "The
Reorganization."

BROAD DISCRETION AS TO USE OF PROCEEDS; BENEFITS TO INSIDERS. The Company
plans to allocate the net proceeds it receives from this Offering to repay
funded indebtedness, to pay down trade payables and for working capital and
other general corporate purposes, including potential future acquisitions.
Accordingly, management will have broad discretion with respect to the
expenditure of the net proceeds of this Offering. Although the Company intends
to use a portion of the proceeds from the Offering to acquire additional
licenses and to acquire product lines and other toy businesses, there can be no
assurance that suitable acquisitions can be located, that any such acquisitions
can be consummated or that such acquisitions will be successfully integrated
into the Company's operations. The personal guarantees of certain officers of
the Company and corporate guarantees of certain affiliated companies, including
Tai Nam, on the Company's existing credit facility with State Street Bank are
expected to be terminated upon the closing of the Offering. In addition,
approximately 29.2% of the proceeds will be used by the Company to pay
manufacturing-related trade payables owed to Tai Nam and Concentric Toys
Limited, each of which is owned by Mr. David Chu, the Company's Chairman and one
of its principal stockholders. See "Use of Proceeds."

NO DIVIDENDS. Although the Company declared dividends to its stockholders
in 1993, 1994 and 1995, the Company intends to retain its earnings, if any, to
finance the operation and expansion of its business and, therefore, does not
expect to pay any cash dividends in the foreseeable future. See "Dividend
Policy."

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<PAGE>
DILUTION. The purchasers of Common Stock in this Offering will experience
immediate and substantial dilution in the net tangible book value of the Common
Stock of $6.49 or 76.3% per share. See "Dilution."

CONTROL BY EXISTING STOCKHOLDERS. Following the closing of this Offering,
the Company's current stockholders will beneficially own approximately 73.5% of
the Company's outstanding Common Stock (70.7% if the Underwriter's
over-allotment option is exercised in full). Accordingly, these stockholders
will have the ability to control the outcome of stockholder votes, which will
include the ability to elect all of the Company's directors, control the
adoption or amendment of provisions in the Company's Certificate of
Incorporation and Bylaws, and approve certain mergers and other significant
corporate transactions. See "Principal Stockholders" and "Description of
Securities."

SHARES ELIGIBLE FOR FUTURE SALE. Future sales of shares of Common Stock by
existing stockholders pursuant to Rule 144 ("Rule 144") promulgated under the
Securities Act of 1933 (the "Securities Act"), or otherwise, could have an
adverse effect on the price of the shares of Common Stock. Upon completion of
the Offering, the Company will have 10,200,000 shares of Common Stock
outstanding (10,605,000 shares if the Underwriter's over-allotment option is
exercised in full). In addition, the Company has reserved for issuance 750,000
shares of Common Stock upon exercise of options which may be granted under the
Company's 1997 Stock Option Plan (the "Stock Option Plan").

The 2,700,000 shares of Common Stock offered in the Offering (3,105,000 if
the Underwriter's over-allotment option is exercised in full) will be freely
transferable without restriction or further registration under the Securities
Act except for any shares purchased by an "affiliate" of the Company within the
meaning of Rule 144. The remaining 7,500,000 shares of Common Stock currently
outstanding are "restricted securities," as that term is defined in Rule 144,
and may only be sold pursuant to a registration statement under the Securities
Act or an applicable exemption from registration thereunder, including
exemptions provided by Rule 144. No prediction can be made as to the effect that
future sales of Common Stock, or the availability of shares of Common Stock for
future sales, will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices for
the Common Stock and could impair the Company's ability to raise capital through
the future sale of equity securities. The holders of all shares of Common Stock
issued and outstanding at the effective date have agreed not to offer, sell,
contract to sell, assign, transfer or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock, held by them, for a period of not less
than nine (9) months following the Effective Date without the prior written
consent of the Representatives. See "Management," "Principal Stockholders,"
"Shares Eligible for Future Sale" and "Underwriting."

ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE. Prior to the Offering, there has been no public
trading market for the Common Stock and there can be no assurance that an active
public market for the Common Stock will develop or continue following the
Offering. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives. Factors
considered in such negotiations, in addition to prevailing market conditions,
include the history and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure and certain other factors deemed relevant.
Therefore, the public offering price of the Common Stock does not necessarily
bear any relationship to the Company's net asset value, net working capital or
other established criteria of value, and should not be considered indicative of
the actual value of the Common Stock and may bear no relationship to the price
at which the Common Stock will trade after completion of the Offering. There can
be no assurance that the market price of the Common Stock will not decline below
the initial public offering price. See "Underwriting."

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<PAGE>
The market price for the Common Stock is likely to be highly volatile and
could be subject to wide fluctuations in response to quarterly variations in
operations, financial results, announcements with respect to sales and earnings,
technological innovations, new product developments, the sale or attempted sale
of a large amount of securities in the public market, regulatory developments
and other events or factors which cannot be foreseen or predicted by the
Company.

CERTAIN ANTI-TAKEOVER CONSIDERATIONS. Certain provisions of the Company's
Amended and Restated Certificate of Incorporation and Bylaws may discourage,
defer or prevent a change of control of the Company. These provisions (1)
classify the Company's Board of Directors into three classes, each of which
serves for a different three-year period, (2) provide that only the Board of
Directors, the Chairman or at least 10% of the stockholders of the Company
entitled to vote may call special meetings of the stockholders, (3) establish
certain advanced notice procedures for nomination of candidates for election as
directors and for stockholder proposals to be considered at stockholders'
meetings and (4) authorize preferred stock, the terms of which may be determined
by the Board of Directors and which may be issued without stockholder approval.
Each of these provisions, as well as certain provisions of the Delaware Business
Combination Act to which the Company is subject, could have the effect of
delaying or preventing an acquisition or change in control of the Company. In
addition, the employment agreements of the executive officers of the Company
contain certain provisions entitling them to enhanced compensation in the event
of a change of control. See "Description of Securities--Delaware Law and Certain
Charter and By-law Provisions" and "Management--Employment Agreements."

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<PAGE>
THE REORGANIZATION

Toymax International, Inc., a Delaware corporation ("Toymax" and the
"Company") was organized in Delaware on August 6, 1997 to acquire and continue
the various businesses conducted by Toymax Inc., a New York corporation ("Toymax
NY"), Toymax (H.K.) Limited, a private limited company organized under the laws
of Hong Kong ("Toymax HK"), Toymax (Bermuda) Limited, a company organized under
the laws of Bermuda ("Toymax Bermuda"), Toymax (Canada) Limited, a corporation
organized under the laws of the Province of Ontario ("Toymax Canada") and Toymax
(U.K.) Limited, a company organized under the laws of England and Wales ("Toymax
UK" and collectively, the "Toymax Group"). Toymax HK and Toymax NY, historically
the Company's principal operating entities, were each formed in 1990. Toymax
Canada was formed in August 1997 and Toymax Bermuda was formed in September
1997. Toymax Bermuda will continue the business previously carried out by Toymax
HK on a going forward basis. Prior to closing of the Offering, the Company will
complete the reorganization pursuant to which: (i) Toymax HK will contribute all
of the outstanding capital stock of its wholly-owned subsidiaries, Toymax NY and
Toymax UK, to the Company and (ii) the stockholders of Toymax HK will exchange
their 100,000 ordinary shares of Toymax HK stock for 425,686 shares of Common
Stock of the Company and 4,500,000 shares of Preferred Stock of Toymax HK for
24,224 shares of Common Stock of the Company (the "Reorganization"). Following
the Reorganization, Toymax NY, Toymax HK, Toymax Bermuda, Toymax Canada and
Toymax UK will be direct or indirect wholly-owned subsidiaries of Toymax.
Following the Reorganization and prior to completing the Offering, the Company
will effect a 16.67 to one stock split. See "Risk Factors -- Holding Company
Structure."

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<PAGE>
USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of 2,700,000
shares of Common Stock offered hereby, at an assumed Offering price of $8.50 per
share, are estimated to be approximately $20.5 million ($23.7 million if the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and other estimated expenses of the
Offering. The Company intends to use the net proceeds as follows (all figures
are approximate):

<TABLE>
<CAPTION>
APPROXIMATE AMOUNT
OF NET PROCEEDS APPROXIMATE PERCENTAGE
(IN MILLIONS) OF NET PROCEEDS
--------------------- -----------------------
<S> <C> <C>

Payment of Bank Indebtedness......................................... $ 10.0 48.8%

Payment of Trade Payables to Affiliates.............................. 6.0 29.2%

Working Capital and General Corporate Purposes....................... 4.5 22.0%
----- -----

Total............................................................ $ 20.5 100.0%
----- -----
----- -----
</TABLE>

PAYMENT OF BANK INDEBTEDNESS. Approximately $10.0 million will be used by
the Company to make partial repayment on its existing Credit Facility Agreement
with State Street Bank (the "State Street Credit Facility"). The Company's
outstanding indebtedness under the State Street Credit Facility was $5.1 million
at June 30, 1997 and it is anticipated that such outstanding indebtedness will
be $15.6 million upon the closing of the Offering. Outstanding indebtedness
bears interest at the U.S. prime rate plus one-half percent (8.5% at June 30,
1997). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Business --
Purchasing and Manufacturing."

PAYMENT OF TRADE PAYABLES TO AFFILIATES. Approximately $6.0 million will be
used by the Company to make partial repayment on outstanding trade payables to
the Company's current and former purchasing agents Tai Nam and Concentric Toys
Limited ("Concentric"), respectively. Tai Nam and Concentric are owned by David
Chu, Chairman and a principal stockholder of Toymax. Outstanding payables to
these companies was $9.3 million at June 30, 1997 and it is anticipated that
such outstanding payables will increase to $21.0 million as of the closing of
the Offering. The Company will use this portion of the proceeds to shorten the
payment cycle on products purchased from Tai Nam. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Purchasing and Manufacturing."

WORKING CAPITAL AND GENERAL CORPORATE PURPOSES. The balance of
approximately $4.5 million will be used by the Company and its operating
subsidiaries for general working capital purposes, which may include strategic
acquisitions. The Company intends to pursue acquisitions of toy companies and
product lines which either complement or enhance the Company's current products
or allow the Company to expand into new market segments. While the Company
engages from time to time in discussions with respect to potential investments
or acquisitions, the Company presently has no plans, commitments or agreements
with respect to any such acquisitions.

Management intends to use the estimated net proceeds as indicated above. In
the event that the Company's plans change, or if the proceeds of this Offering
or internal cash flow otherwise prove to be insufficient to fund operations, the
Company may find it necessary or advisable to reallocate some of the proceeds
within the categories noted above or may be required to seek additional
financing which may be dilutive to existing shareholders. If the Underwriters
exercise the underwriters' over-allotment option in full, the Company will
realize additional net proceeds of $3.2 million, which will be used to reduce
bank indebtedness. Pending application of the net proceeds described herein,
such amounts may be invested in short-term, investment-grade, interest-bearing
securities. See "Risk Factors -- Broad Discretion as to Use of Proceeds."

The Company believes that the net proceeds of this Offering, together with
its existing capital resources and anticipated revenues from operations will be
sufficient to enable it to maintain its current and planned operations for a
period of at least 12 months after consummation of the Offering. See
"Managements Discussion and Analysis of Financial Condition and Results of
Operations."

17
<PAGE>
DILUTION

Dilution is the amount by which the initial public offering price paid by
the purchasers of shares of Common Stock in the Offering exceeds the net
tangible book value per share of Common Stock after the Offering. The net
tangible book value per share of Common Stock is determined by subtracting the
total liabilities of the Company from the total book value of the tangible
assets of the Company and dividing the difference by the number of shares of
Common Stock deemed to be outstanding on the date as of which such book value is
determined.

As of June 30, 1997, the Company had a net tangible book value of $0.1
million, or $0.01 per share of Common Stock. Net tangible book value represents
the amount of total assets, less any intangible assets and total liabilities.
Assuming no changes in the net tangible book value after June 30, 1997, other
than to give effect to the sale by the Company of 2,700,000 shares of Common
Stock offered hereby at an assumed initial offering price of $8.50 per share and
after deducting underwriting discounts, the non-accountable expense allowance
and other estimated offering expenses payable by the Company, the pro forma net
tangible book value of the Company as of June 30, 1997 would have been $20.5
million, or $2.01 per share. This represents an immediate increase in net
tangible book value of $2.00 per share to existing stockholders and an immediate
dilution of $6.49 per share to new investors purchasing shares of Common Stock
in the Offering. The following table illustrates this per share dilution.

<TABLE>
<S> <C> <C>
Assumed initial offering price per share...................... 8.50
Net tangible book value per share before the Offering......... $ 0.01
Increase per share attributable to sale of shares to new
investors................................................... 2.00
---------
Net tangible book value per share after the Offering.......... 2.01
---------
Dilution per share to new investors........................... $ 6.49
---------
---------
</TABLE>

The following table sets forth as of June 30, 1997, the number of shares of
Common Stock purchased or to be purchased from the Company, the total effective
cash consideration to be paid to the Company, and the average price per share
paid by existing stockholders and by new investors purchasing shares sold by the
Company in the Offering at an assumed initial offering price of $8.50 per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- --------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
Existing stockholders............................... 7,500,000 73.5% $ 57,692 0.3% $ .01
New investors....................................... 2,700,000 26.5 22,950,000 99.7 8.50
---------- ----- ------------- -----
Total........................................... 10,200,000 100.0% $ 23,007,692 100.0% $ 2.26
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>

DIVIDEND POLICY

The Company intends to retain earnings, if any, to finance the development
and expansion of its business and does not anticipate declaring or paying any
cash dividends in the foreseeable future. In deciding whether or not to declare
or pay dividends in the future, the Board of Directors will consider all
relevant factors, including the Company's ability to generate earnings, need for
capital, overall financial condition and any restrictions contained in any then
existing financing or other agreements.

18
<PAGE>
CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of June 30, 1997, and as adjusted to give effect to the Offering (at an assumed
initial public offering price of $8.50 per share and after deducting
underwriting discounts, the non-accountable expense allowances and other
estimated offering expenses payable by the Company) and the initial application
of the net proceeds therefrom. See "Use of Proceeds." The information set forth
below should be read in conjunction with "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash....................................................................................... $ 1,550 $ 11,062
--------- -----------
--------- -----------
Total debt, including short-term debt and current maturities............................... 5,201 201
--------- -----------
Stockholders' equity (deficit):
Preferred Stock
$.01 par value, 5,000,000 shares authorized, none outstanding.......................... 0 0
Common Stock
$.01 par value, 50,000,000 shares authorized; 7,500,000 issued and outstanding, actual,
and 10,200,000 issued and outstanding, as adjusted(1)................................ 58 85
Additional paid-in-capital............................................................... 187 20,645
Retained earnings........................................................................ (157) (157)
Foreign currency translation adjustment.................................................. (15) (15)
--------- -----------
Total stockholders' equity................................................................. 73 20,558
--------- -----------
Total capitalization................................................................... $ 5,274 $ 20,759
--------- -----------
--------- -----------
</TABLE>

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

19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The Selected Consolidated Financial Data of the Company for the two fiscal
years ended March 31, 1994 and 1995 and the balance sheet as of March 31, 1993
have been derived from the consolidated financial statements of the Company,
which were audited by Deloitte Touche Tohmatsu, independent auditors. The
selected consolidated financial data of the Company for the two fiscal years
ended March 31, 1996 and 1997 have been derived from the consolidated financial
statements of the Company, which were audited by BDO Seidman, LLP, independent
certified public accountants. The consolidated statement of operations data for
the year ended March 31, 1993 and the consolidated financial data for the three
months ended June 30, 1996 and 1997 are derived from the unaudited consolidated
financial statements of the Company. In the opinion of management, the unaudited
consolidated financial statements have been prepared on the same basis as the
Company's audited consolidated financial statements in conformity with U.S.
generally accepted accounting principles, and includes all adjustments and
consists only of normal recurring accruals necessary for a fair presentation of
the results of operations for such periods. The Selected Consolidated Financial
Data should be read in conjunction with the Consolidated Financial Statements of
the Company and the Notes thereto, "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED MARCH 31, JUNE 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $ 33,393 $ 72,431 $ 70,623 $ 43,622 $ 54,683 $ 2,679 $ 7,091
Cost of goods sold................ 18,730 37,518 42,640 30,601 33,837 2,367 3,784
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................... 14,663 34,913 27,983 13,021 20,846 312 3,307
Selling and administrative
expenses........................ 9,112 21,525 27,121 24,641 18,026 2,833 3,664
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)........... 5,551 13,388 862 (11,620) 2,820 (2,521) (357)
Other income, (expense)........... (273) (225) (332) 300 228 222 (51)
Interest expense, net............. (418) (483) (460) (738) (394) (41) (131)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
and minority interest........... 4,860 12,680 70 (12,058) 2,654 (2,340) (539)
Provision (benefit) for income
taxes........................... 1,398 4,818 (198) (2,254) (681) (922) (152)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before minority
interest in net loss of
subsidiary...................... 3,462 7,862 268 (9,804) 3,335 (1,418) (387)
Minority interest in net loss of
subsidiary...................... 0 0 0 0 12 -- 18
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................. $ 3,462 $ 7,862 $ 268 $ (9,804) $ 3,347 $ (1,418) $ (369)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common
share........................... $ .46 $ 1.05 $ .04 $ (1.31) $ .45 $ (.19) $ (.05)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Supplemental net income (loss) per
share........................... -- -- -- -- $ .47 -- $ (0.03)
--------- ---------
--------- ---------
Cash dividends declared per common
share........................... $ .22 $ .18 $ .09 $ -- $ -- $ -- $ --
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Average common shares
outstanding..................... 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
----------------------------------------------------- -----------
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $ (1,288) $ 3,532 $ 1,479 $ (6,123) $ (2,135) $ (2,546)
Total assets.............................................. 13,062 27,659 25,542 22,127 26,278 22,536
Short-term debt........................................... 644 3,448 2,487 4,013 8,447 5,104
Long-term obligations (including current portion)......... 35 182 206 119 46 97
Total stockholders' equity (deficit)...................... 631 7,144 6,712 (3,092) 255 73
</TABLE>

20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company creates, designs and develops innovative toys, which it markets
and sells in the U.S. and throughout the world. The toy industry has
historically been impacted by rapidly changing consumer preferences resulting in
the need to continually create and market new products. Further, the industry is
characterized by intense competition, a concentration of customers and a high
degree of seasonality. The majority of the Company's sales are made in the
second and third quarters of its fiscal year. In fiscal 1995, 1996 and 1997, the
Company's sales in its second and third fiscal quarters represented between
66.4% and 84.1% of total net sales. As a result, the Company expects that the
operating results and demand for working capital will vary significantly from
quarter to quarter.

Toymax International, Inc., a Delaware corporation ("Toymax" and the
"Company") was organized in Delaware on August 6, 1997 to acquire and continue
the various businesses conducted by Toymax NY, Toymax HK, Toymax Bermuda, Toymax
Canada, and Toymax UK (collectively, the "Toymax Group"). Toymax HK and Toymax
NY, historically the Company's principal operating entities, were each formed in
1990. Toymax Canada was formed in August 1997 and Toymax Bermuda will be formed
prior to the closing of the Offering and will continue the business previously
carried out by Toymax HK on a going forward basis. Prior to closing of the
Offering, the Company will complete the Reorganization pursuant to which Toymax
NY, Toymax HK, Toymax Bermuda, Toymax Canada and Toymax UK will become direct or
indirect wholly-owned subsidiaries of Toymax. From and after the date of the
Reorganization, all the assets and businesses of the Toymax Group will be owned
and conducted by Toymax. See "The Reorganization."

The historical consolidated financial statements of the Company include the
accounts of the Company, its two wholly-owned subsidiaries and its majority
owned subsidiary, Craft Expressions (since its inception on November 25, 1996).
Sales are recorded on shipment, FOB from point of shipment. The Company's U.S.
Domestic Sales are made on trade terms which provide for payment at dates
subsequent to the date of shipment. The Company factors most of these sales to
eliminate the credit risk and to provide a borrowing base for its credit
facility. Most of the Toymax HK Sales are based on orders accompanied by letters
of credit that entitle the Company to draw funds upon shipment.

The Company provides reserves for sales allowances including promotional
allowances and allowances for anticipated defective product returns at the time
of shipment. These reserves are determined as a percentage of sales based upon
either historical experience or on estimates agreed upon by its customers. Costs
of sales include all product related costs including inbound freight,
amortization of the costs of molds and provisions for obsolescence.

The largest portion of the Company's selling and administrative expenses is
advertising. A significant portion of the Company's advertising costs are spent
on advertising on children-oriented television. Research and development
expenses represent another significant cost to the Company, consistent with its
emphasis on, and history of, internally generated products. In addition, product
royalties paid on licensed products and to independent inventors as well as
sales commissions paid to its outside sales representatives constitute
significant expense categories for the Company.

21
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth the percentages of net sales of certain
income and expense items of the Company for the last three fiscal years and for
the quarters ended June 30, 1997 and 1996.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
PERCENTAGE OF NET SALES JUNE 30,
------------------------------- ------------------------
1995 1996 1997 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ................................................ 60.4 70.2 61.9 88.4 53.4
--------- --------- --------- ----------- -----------
Gross profit ...................................................... 39.6 29.8 38.1 11.6 46.6
Selling and administrative expenses................................ 38.4 56.5 33.0 105.7 51.7
--------- --------- --------- ----------- -----------
Operating income (loss)............................................ 1.2 (26.7) 5.1 (94.1) (4.9)
Other income (expense), net........................................ (0.4) 0.7 0.4 8.3 (0.7)
Interest expense, net.............................................. (0.7) (1.7) (0.7) (1.5) (1.8)
Income tax benefit ................................................ 0.3 5.2 1.3 34.4 2.1
--------- --------- --------- ----------- -----------
Net income (loss).................................................. 0.4% (22.5)% 6.1% (52.9)% (5.3)%
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>

FOR PURPOSES OF THE FISCAL YEAR COMPARISONS BELOW, FIGURES REFERRING TO THE
FINANCIAL PERFORMANCE OF TOYMAX NY (WHICH HAS CONDUCTED THE COMPANY'S U.S.
DOMESTIC SALES) ARE REFERRED TO AS THE "U.S. DOMESTIC OPERATION" AND THOSE
REFERRING TO THE PERFORMANCE OF TOYMAX HK (WHICH HAS CONDUCTED THE TOYMAX HK
SALES) ARE REFERRED TO AS THE "FOB HONG KONG OPERATION."

FIRST QUARTER ENDED JUNE 30, 1997 COMPARED WITH FIRST QUARTER ENDED JUNE 30,
1996

NET SALES. Net sales for the quarter ended June 30, 1997 increased by
approximately $4.4 million, or 164.7%, to approximately $7.1 million from $2.7
million for the quarter ended June 30, 1996.

Net sales of the U.S. Domestic Operation increased 349.2% to $4.5 million,
or 62.9% of total net sales, in the quarter ended June 30, 1997, from $1.0
million, or 37.1% of total net sales, for the quarter ended June 30, 1996. Net
sales of the FOB Hong Kong Operation increased 56.1% to $2.6 million, or 37.1%
of total net sales, in the quarter ended June 30, 1997 from $1.7 million, or
62.9% of total net sales, in the quarter ending June 30, 1996. The increase in
sales, in both operations, was mainly attributable to the introduction of the
Laser Challenge and Metal Molder product lines which were initially shipped to
customers in the quarter ended September 30, 1996.

GROSS PROFIT. Gross Profit for the quarter ended June 30, 1997, increased
by approximately $3.0 million, or 959.2%, to approximately $3.3 million, or
46.6% of net sales, from approximately $0.3 million, or 11.6% of net sales, for
the quarter ended June 30, 1996. The increase in gross profit as a percentage of
net sales was mainly attributable to an improvement in the U.S. Domestic
Operation which was primarily due to higher product margins on invoiced sales
and to lower manufacturing costs as a result of closing the U.S. domestic
manufacturing operation in fiscal 1997.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for the quarter ended June 30, 1997 increased by approximately $0.9 million, or
29.3%, to approximately $3.7 million, or 51.7% of net sales, from approximately
$2.8 million, or 105.8% of net sales, for the quarter ended June 30, 1996. The
increase in selling and administrative expenses was mainly attributable to
greater (i) payroll expenses of $0.3 million, (ii) research and development
expenses of $0.1 million, and (iii) sales commissions, royalty expenses and
warehouse storage expenses totalling $0.2 million as a direct result of
increased sales. In addition, the Company recognized $0.2 million in non-cash
compensation expense in connection with the sale of shares by the principal
shareholder of the Company in the quarter ended June 30, 1997.

22
<PAGE>
Selling and administrative expenses as a percentage of net sales decreased
to 51.7% for the quarter ended June 30, 1997. The lower percentage of expenses
was due primarily to the improvement in net sales. The largest improvement was
achieved in payroll and advertising expenses. Payroll expenses as a percentage
of net sales decreased to 16.7% for the quarter ended June 30, 1997 as compared
to 30.9% for the quarter ended June 30, 1996. Advertising expenses, as a
percentage of net sales, decreased to 7.1% as compared to 21.4% for the quarter
ended June 30, 1996.

OPERATING INCOME (LOSS). As a result of the foregoing, operating loss for
the quarter ended June 30, 1997 decreased by approximately $2.2 million to
approximately $0.3 million from a loss of approximately $2.5 million for the
quarter ended June 30, 1996.

NET INTEREST EXPENSE. Net interest expense for the quarter ended June 30,
1997 increased by approximately $91,000, or 222.3%, to approximately $0.1
million from approximately $41,000 for the quarter ended June 30, 1996. The
increase in net interest expense was mainly due to higher interest costs
reflecting an increase in average borrowings under the Company's credit
facility.

OTHER INCOME, NET. Other income for the quarter ended June 30, 1997
decreased by approximately $215,000, or 87.1%, to $32,000 from $247,000 for the
quarter ended June 30, 1996. The decrease in other income is primarily the
result of the termination of an agency agreement between Toymax (H.K.) and
another unaffiliated international toy distributor on December 31, 1996.

INCOME (LOSS) BEFORE TAXES. The loss before taxes for the quarter ended
June 30, 1997 decreased by approximately $1.8 million to a loss of approximately
$0.5 million from a loss of approximately $2.3 million for the quarter ended
June 30, 1996

INCOME TAX BENEFIT. Income tax benefit for the quarter ending June 30, 1997
decreased by approximately $0.8 million, or 83.5%, to a benefit of approximately
$0.1 million from a benefit of approximately $0.9 million for the quarter ended
June 30, 1996.

NET INCOME (LOSS). As a result of the foregoing, net loss for the quarter
ended June 30, 1997 decreased by approximately $1.0 million, or 74.0%, to a net
loss of approximately $0.4 million from a net loss of approximately $1.4 million
for the quarter ended June 30, 1996.

FISCAL YEAR ENDED MARCH 31, 1997 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1996

NET SALES. Net sales for fiscal 1997 increased by approximately $11.1
million, or 25.4%, to approximately $54.7 million from $43.6 million for fiscal
1996. This increase in sales was mainly attributable to the introduction of the
Laser Challenge, Metal Molder and the licensed Goosebumps product lines which
accounted for approximately 62% of net sales in fiscal 1997, partially offset by
a decrease in net sales of the Creepy Crawlers and Dollymaker product lines.

Net sales of the U.S. Domestic operation increased 43.9% to $38.8 million,
or 70.9% of total net sales, in fiscal 1997, from $27.0 million, or 61.8% of
total net sales, in fiscal 1996. Net sales of the FOB Hong Kong Operation
decreased 4.7% to $15.9 million, or 29.1%, of total net sales in fiscal 1997
from $16.7 million, or 38.2% of total net sales, in fiscal 1996. The relatively
late introduction of the new products in the FOB Hong Kong Operation resulted in
their having less impact on FOB Hong Kong Operation net sales which are
generally ordered and shipped earlier than in the U.S. Domestic Operation.

GROSS PROFIT. Gross profit for fiscal 1997, increased by approximately $7.8
million, or 60.1%, to approximately $20.8 million, or 38.1% of net sales, from
approximately $13.0 million, or 29.8%, of net sales for fiscal 1996. The
increase in gross profit was mainly due to the increased net sales and an
increase in gross profit as a percentage of net sales. The increase in gross
profit as a percentage of net sales was mainly attributable to an increase of
approximately 14.1% as a percentage of net sales in the U.S. Domestic Operation
partially offset by a decrease of 2.5% as a percentage of net sales in the FOB
Hong Kong

23
<PAGE>
Operation. The increase in the U.S. Domestic Operation was due to improved
product margins related to lower manufacturing costs and customer allowances as
percentages of net sales. The reduction in manufacturing costs resulted mainly
from the Company's decision to close its remaining U.S. manufacturing operations
and shift production to a lower cost manufacturer with a factory in China. See
"Business-- Purchasing and Manufacturing" and "Certain Relationships and Related
Transactions." The decrease in customer allowances was mainly due to better
inventory controls, an improved retail environment and a stronger product line
which resulted in the Company having to discount fewer of its products and to
provide lower sales allowances to retailers.

The decline for the FOB Hong Kong Operation was primarily due to the
lowering of prices on products sold to the United Kingdom and France which had
been increased in fiscal 1996 to compensate for an increase in promotional
programs in those countries. These programs were discontinued for fiscal 1997 on
new product lines.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for fiscal 1997 decreased by approximately $6.6 million, or 26.8%, to
approximately $18.0 million, or 33.0% of net sales, from approximately $24.6
million, or 56.5% of net sales, for fiscal 1996. The decrease in selling and
administrative expenses was mainly attributable to decreases in advertising and
public relations expenses of $5.2 million due to improved expense controls and a
decrease of $0.9 million in the FOB Hong Kong Operation and bad debt expense of
$0.9 million due to a provision that was set up in fiscal 1996 for goods
delivered and later returned by an international customer; partially offset by
an increase in royalty expenses of $0.5 million. The increase in royalty
expenses resulted from increased sales of licensed products including the new
Goosebumps product line.

OPERATING INCOME. As a result of the foregoing, operating income for fiscal
1997 increased by approximately $14.4 million to approximately $2.8 million from
a loss of approximately $11.6 million for fiscal 1996.

NET INTEREST EXPENSE. Net interest expense for fiscal 1997 decreased by
approximately $0.3 million, or 46.6%, to approximately $0.4 million from
approximately $0.7 million for fiscal 1996. The decrease in net interest expense
was mainly due to lower interest costs reflecting a decrease in average
borrowings under the Company's credit facility and a decrease in average
borrowing rates of approximately 0.6%.

INCOME (LOSS) BEFORE TAXES. Income (loss) before taxes for fiscal 1997,
increased by approximately $14.7 million to income of approximately $2.7 million
from a loss of approximately $12.1 million for fiscal 1996.

INCOME TAX BENEFIT. Income tax benefit for fiscal 1997 decreased by
approximately $1.6 million, or 69.8%, to a benefit of approximately $0.7 million
from a benefit of approximately $2.3 million for fiscal 1996. The benefit in
fiscal 1996 was mainly due to the utilization of a net operating loss carryback
which was available to partially offset the pre-tax loss on the U.S. Domestic
Operation. The benefit in fiscal 1997 was mainly due to the reduction in a
valuation allowance that was established in fiscal 1996.

Because of the Company's losses in fiscal 1995 and 1996 from U.S. Domestic
Operations, a valuation allowance for the deferred income tax assets was
provided due to the uncertainty as to future realization. During the year ended
March 31, 1997, the valuation allowance was reduced to reflect a net deferred
tax asset equal to the anticipated tax benefit of the temporary differences
between tax bases of assets and liabilities and their reported amounts in the
financial statements which are expected to be realized within one year. The
temporary differences result from costs required to be capitalized for tax
purposes by the U.S. Internal Revenue Code, and certain items accrued for
financial reporting purposes in the year incurred but not deductible for tax
purposes until paid.

24
<PAGE>
NET INCOME (LOSS). As a result of the foregoing, net income for fiscal 1997
increased by approximately $13.2 million, or 134.1%, to net income of
approximately $3.3 million from a net loss of approximately $9.8 million for
fiscal 1996.

FISCAL YEAR ENDED MARCH 31, 1996 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1995

NET SALES. Net sales for fiscal 1996 decreased by approximately $27.0
million, or 38.2%, to approximately $43.6 million from $70.6 million for fiscal
1995. This decrease in net sales was mainly attributable to a decrease in sales
of the Creepy Crawlers and Incredible Edibles product lines partially offset by
an increase in the Dollymaker, Talking Tina and Everglo product lines.

Net sales of the U.S. Domestic Operation decreased 51.2% to $27.0 million,
or 61.8% of total net sales, in fiscal 1996 from $55.3 million, or 78.3% of net
sales, in fiscal 1995. Net sales of the FOB Hong Kong Operation increased 8.5%
to $16.7 million, or 38.2% of total net sales, from $15.4 million, or 21.7% of
total net sales, in fiscal 1995.

The decrease in U.S. Domestic Sales was mainly attributable to the decrease
in net sales of its Creepy Crawlers product line. In addition, the holiday
season of calendar year 1995 was difficult for the major toy retailers resulting
in late orders and late cancellation of orders from manufacturers and
distributors. Ultimately, retailers' orders tended to be narrowly focused on
heavily promoted hot products to the detriment of the broader and more basic
product lines such as the Company's Creepy Crawlers. The Company had orders
cancelled late in the season and did not receive anticipated orders after it had
produced and warehoused sufficient product to meet those orders. In an effort to
reduce its inventory levels, within the compressed selling season, management
provided the retailers with significant discounts off list prices. In addition,
retailers received significant sales allowances.

The increase in net sales of the FOB Hong Kong Operation was mainly due to
the introduction of the Dollymaker and Everglo product lines and increased sales
in the Talking Tina product line. Such increase was partially offset by a
decrease in sales of the Toolmaster product line. The FOB Hong Kong Operation
was not significantly affected by the problems that the U.S. Domestic Operation
encountered with U.S. retailers due to earlier shipping requirements and because
approximately 70.6% and 76.2% of its sales for fiscal 1995 and 1996,
respectively, were to countries outside of the United States.

GROSS PROFIT. Gross profit for fiscal 1996 decreased by approximately $15.0
million, or 53.5%, to approximately $13.0 million, or 29.8% of net sales, from
approximately $28.0 million, or 39.6% of net sales, for fiscal 1995.

The decrease in gross profit as a percentage of net sales was attributable
to a decrease in the U.S. Domestic Operation which achieved a gross profit of
25.6% in fiscal 1996 as compared to 41.7% in fiscal 1995. The decrease in the
U.S. Domestic Operation's gross profit percentage was mainly due to increased
sales discounts and allowances provided to the Company's customers and lower
product margins. Sales discounts and allowances were 20.1% of net sales in
fiscal 1996 as compared to 9.7% in fiscal 1995. These concessions were required
to move the excess inventories that resulted from late order cancellations and a
difficult holiday season for the Company's retail customers. The lower product
margins in fiscal 1996 were mainly due to an increase in manufacturing costs as
a percentage of net sales. The higher manufacturing costs as a percentage of net
sales were mainly attributable to the U.S. Domestic manufacturing operation.
These operations included certain fixed overhead costs that were established in
anticipation of the higher sales levels that did not materialize.

Gross profit as a percentage of net sales for the FOB Hong Kong Operation
increased to 36.7% in fiscal 1996 as compared to 31.4% in fiscal 1995. The
improvement was mainly due to increased product margins on products lines sold
to the United Kingdom and France which offset the increase in promotional
programs in such countries.

25
<PAGE>

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for fiscal 1996 decreased by approximately $2.5 million, or 9.1%, to
approximately $24.6 million, or 56.5% of sales, from approximately $27.1
million, or 38.4% of sales, for fiscal 1995. The decrease was mainly
attributable to (i) a decrease in royalty expenses of $2.1 million due to the
decrease in the sales of licensed products, (ii) a decrease in sales commission
expenses of $0.5 million due to the decrease in sales subject to commission,
(iii) a decrease in research and development expenses of $1.6 million due to
anticipated lower sales levels and to more efficient utilization of outside
resources, (iv) a decrease in professional fees of $0.5 million, (v) an increase
in advertising and public relations expenses of $0.7 million due to
non-cancelable commitments made in fiscal 1996 and (vi) an increase in bad debt
expense of $0.9 million due to goods delivered to, and later returned by, an
international customer.

Selling and administrative expenses as a percentage of net sales increased
to 56.5% in fiscal 1996. The higher percentage of expenses was mainly due to an
increase in advertising and public relations expenses as a percentage of net
sales to 23.2% of net sales in fiscal 1996 as compared to 13.3% in fiscal 1995.
In addition, expenses were not reduced in proportion to lower sales levels.
Excluding advertising and public relations expenses, total selling and
administrative expenses decreased approximately 20.9%, while net sales decreased
approximately 38.2% for fiscal 1996 as compared to fiscal 1995. The inability to
proportionately reduce expenses to meet lower net sales was mainly due to the
timing of the cancellation of orders and anticipated orders just prior to the
main selling season.

OPERATING INCOME (LOSS). As a result of the foregoing, operating income for
fiscal 1996 decreased by approximately $12.5 million to a loss of approximately
$11.6 million from income of approximately $0.9 million for fiscal 1995.

NET INTEREST EXPENSE. Net interest expense for fiscal 1996 increased by
approximately $0.3 million or 60.5% to approximately $0.7 million from
approximately $0.5 million for fiscal 1995. The increase in net interest expense
was mainly due to an increase in average borrowings under the Company's credit
facility as well as an increase in average borrowing rates of approximately
1.1%.

INCOME (LOSS) BEFORE TAXES. Income before taxes for fiscal 1996 decreased
by approximately $12.1 million to a loss of approximately $12.1 million from
income of approximately $0.1 million for fiscal 1995.

INCOME TAX BENEFIT. Income tax benefit for fiscal 1996 increased by
approximately $2.1 million to approximately $2.3 million from approximately $0.2
million for fiscal 1995. The increase is mainly attributable to losses before
income taxes in fiscal 1996 compared to income before taxes in fiscal 1995.

NET INCOME (LOSS). As a result of the foregoing, net income for fiscal 1996
decreased by approximately $10.1 million to a net loss of approximately $9.8
million from net income of approximately $0.3 million for fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 1995 and 1996 and the first quarter of fiscal 1998, the
Company satisfied the cash requirements of its business through cash flow from
operations and, in fiscal 1996 and 1997, through cash flow from operations and
financing activities. Cash was used principally for operating activities in
fiscal 1997, for purchases of property and equipment in all three years, for
repayment of bank borrowings in fiscal 1995 and the first quarter of fiscal 1998
and for payment of dividends in fiscal 1996 which were declared in fiscal 1995.

During the quarter ended June 30, 1997, the Company received $4.7 million
from operating activities, mainly due to changes in operating assets and
liabilities of $4.7 million, which included decreases in accounts receivable and
amounts due from factor of $9.5 million partially offset by increases in
inventories of $3.2 million and prepaid expenses and other assets of $1.1
million. Cash received from operating activities was reduced by a net loss of
$0.4 million. The Company used cash for investing activities of

26
<PAGE>

$0.3 million, mainly for the acquisition of property and equipment. The Company
also used cash for financing activities in the amount of $3.5 million, mainly to
reduce amounts due under its credit facility with State Street Bank & Trust
Company, Hong Kong Branch. As a result of the foregoing, cash and cash
equivalents increased during the quarter by $1.0 million.

During fiscal 1997, the Company used cash of $4.7 million for operating
activities, mainly for changes in operating assets and liabilities of $8.5
million, which included increases in accounts receivable and amounts due from
factor of $10.4 million, and decreases in accounts payable and accruals of $3.3
million, partially offset by decreases in income tax refunds receivable of $4.2
million and decreases in inventories of $1.0 million. Cash used for changes in
operating assets and liabilities was partially offset by net income of $3.3
million adjusted for a total of $0.3 million from non-cash items including
depreciation and amortization of $1.5 million, partially offset by changes in
deferred income taxes of $1.2 million. The Company used cash for investing
activities of $0.8 million, mainly for the acquisition of property and
equipment. The Company received cash from financing activities of $4.8 million,
mainly from increases in borrowing under its credit facility with State Street
Bank & Trust Company, Hong Kong Branch. As a result of the foregoing, cash and
cash equivalents decreased during the fiscal year by $0.7 million.

During fiscal 1996, the Company received $0.7 million from operating
activities, mainly due to changes in operating assets and liabilities of $6.2
million, which included increases in amounts due to affiliates of $4.0 million,
decreases in amounts due from affiliates of $1.1 million, decreases in inventory
of $2.2 million, increases in accounts payable and accruals of $1.5 million, and
decreases in accounts receivable and amounts due from factor of $1.0 million
partially offset by increases in income tax refunds receivable of $3.8 million.
These increases in cash were partially offset by a net loss of $9.8 million
adjusted for non-cash items including depreciation of $1.8 million, changes in
deferred income taxes of $1.7 million and bad debt expenses of $0.9 million. The
Company used cash for investing activities of $0.7 million including $1.1
million for the acquisition of property and equipment partially offset by
proceeds from the disposal of fixed assets. Financing activities resulted in
increase in cash of $0.7 million including net increase in bank borrowings of
$1.5 million partially offset by the payment of dividends of $0.7 million. As a
result of the foregoing, cash and cash equivalents increased during the fiscal
year by $0.7 million.

During fiscal 1995, the Company received $1.5 million from operating
activities, mainly due to net income of $0.3 million adjusted for non-cash items
of $1.5 million including depreciation of $1.3 million. These increases in cash
were partially offset by decreases from changes in operating assets and
liabilities of $0.2 million including decreases in accounts receivable and
amounts due from factor of $2.0 million, increases in net amounts due from
affiliates of $0.8 million, and decreases in income taxes payable of $1.3
million, partially offset by an increase in accounts payable and accruals of
$1.1 million. The Company used cash for investment purposes of $2.4 million
primarily for the acquisition of property and equipment. Financing activities
used cash of $1.2 million mainly to reduce bank borrowings by $1.0 million. As a
result of the foregoing, cash and cash equivalents decreased during the fiscal
year by $2.1 million.

The Company experienced significant growth in net sales in fiscal 1997 as
compared to fiscal 1996. Future growth of the Company will result in increased
working capital requirements, mainly inventory and accounts receivable. In
fiscal 1997, the Company's working capital benefitted from extended payment
terms on merchandise purchases provided by its purchasing agent, then
Concentric, and currently Tai Nam, both affiliates of David Chu, the Chairman
and a principal stockholder of the Company. These terms were stated as 30 days,
but averaged approximately 110 days, during fiscal 1997. A portion of the
proceeds of the Offering (approximately $6.0 million) are intended to be used to
reduce the amounts due on trade payables due to Concentric and Tai Nam
(totalling $9.2 million as of June 30, 1997 and expected to total approximately
$21.0 million upon the closing of the Offering) to a level that is closer to
stated terms. Tai Nam has agreed to continue to provide extended payment terms
to the Company through the end of fiscal 1998. While management believes there
is no indication that such favorable terms will be needed by the Company after
fiscal 1998, there can be no assurance that such favorable terms will be
available after such

27
<PAGE>
date. See "Risk Factors--Reliance on Single Affiliated Manufacturer and
Potential Conflict of Interest" and "Certain Relationships and Related
Transactions".

The Company expects to fund its near-term cash requirements from a
combination of the net proceeds from the Offering, cash flow from operations and
borrowings under its credit facility with State Street Bank & Trust. The Company
expects to finance its longer term growth primarily from cash flow from
operations and with externally generated funds which will likely include
borrowings under its existing or future credit facilities. There can be no
assurance that sufficient cash flow from operations will materialize or that
financing under a credit facility will be available in amounts, or at rates, or
on terms and conditions acceptable to the Company. In such event, additional
funding would be required. See "Risk Factors-No Assurance of Profitability."

CREDIT FACILITIES

Toymax NY, Toymax HK, and Tai Nam maintain a line of credit facility ("State
Street Credit Facility") with State Street Bank & Trust Company, Hong Kong
Branch ("State Street"). The State Street Credit Facility is subdivided into
three sub-facilities: (i) a $25.0 million Factoring-Cum-Financing Facility for
Toymax NY ("Factoring Facility"), (ii) a $5.0 million Inventory Financing
Facility ("Inventory Facility") for Toymax NY and (iii) a $1.0 million Trade
Facility ("Trade Facility") for Toymax HK and its affiliate, Tai Nam. At June
30, 1997, the outstanding balance under the State Street Credit Facility was
$5.1 million as compared to $8.4 million, $4.0 million and $2.5 million at March
31, 1997, 1996 and 1995, respectively. In June 1997, the maximum borrowing limit
under State Street Credit Facility was increased from $12.5 million to $26.0
million. The Company expects the balance at the closing of the Offering to be
approximately $15.6 million. The Company intends to pay down its indebtedness
under the State Street Credit Facility using a portion (approximately $10.0
million) of the proceeds of the Offering. The State Street Credit Facility is
terminable by State Street at any time at its sole discretion, at which time the
Company's obligations to State Street would become due and payable.

Pursuant to the Factoring Facility, the Company may borrow up to $25.0
million against seventy percent (70%) of the Company's accounts receivable
factored by Congress Talcott Corporation ("CTC"). Borrowings under the Factoring
Facility bear interest at State Street's U.S. prime rate (8.5% at March 31,
1997) plus 1/2% per annum. At June 30, 1997, the Company's outstanding
indebtedness under the Factoring Facility was $3.6 million.

Under the Inventory Facility, the Company may borrow up to $5.0 million
against 50% of the Company's current inventory. All loans outstanding under this
facility are due September 15, 1997. Borrowings under the Inventory Facility
bears interest at State Street's U.S. prime rate plus 1/2% per annum. Total
loans made to the Company under the Inventory Facility and Factoring Facility
shall not exceed $25.0 million. At June 30, 1997, the Company's outstanding
indebtedness under the Inventory Facility was $1.5 million.

The Inventory Facility and Factoring Facility are secured by an assignment
of the proceeds of the CTC Factoring Agreement (defined below), a first lien on
the Company's inventory and accounts receivable, and a dilution reserve account
not to exceed $6.0 million. The Inventory Facility and Factoring Facility are
guaranteed, personally and severally by David Chu, Steven Lebensfeld and Harvey
Goldberg and by Tai Nam, Tai Nam Industrial Co. (an affiliate of Tai Nam),
Juantiway, Concentric and Toymax HK. Mr. Chu is the Chairman and a principal
stockholder of the Company and the owner of Tai Nam, Tai Nam Industrial Co.,
Jauntiway and Concentric. Messrs. Lebensfeld and Goldberg are also executive
officers of the Company. Following the closing of the Offering, the Company
expects that each of these guarantees will be terminated.

The Trade Facility provides for up to $1.0 million in letters of credit and
export bills for Toymax HK and/or Tai Nam. At June 30, 1997, there was no
outstanding indebtedness under the Trade Facility. Borrowings under the Trade
Facility bear interest at State Street's U.S. prime rate plus 3/4% per annum.

28
<PAGE>
The Company is a party to a Collection Factoring Agreement, dated June 5,
1991, as amended through April 4, 1994 (the "CTC Factoring Agreement") with CTC.
Pursuant to the CTC Factoring Agreement, the Company assigned its rights to
substantially all accounts receivable, contract rights, and other customer
obligations for the payment of money arising out of the sale of the Company's
products. In exchange for such assignment, and upon delivery of the Company's
goods to its customers, CTC purchases the accounts and bears the credit risk
associated therewith. In return for such services, CTC charges a finance charge
of 1.25% on the first $7.5 million of factored sales. For sales in excess of
$7.5 million in any given fiscal year, the finance charge is reduced to 3/4%.
For sales in excess of $50 million in any given fiscal year, the finance charge
is reduced to 1/2%. As collateral for the agreement, the Company has given CTC a
security interest in its accounts receivables and certain other assets (not
including inventory). The CTC Factoring Agreement is terminable by CTC upon the
happening of certain events. In connection with the State Street Credit
Facility, all payments by CTC under the CTC Factoring Agreement are made
directly to State Street.

Since the Company's inception, Toymax has utilized either Concentric or Tai
Nam as its primary purchasing agent. David Chu, the Chairman and a principal
stockholder of the Company, owns Tai Nam and Concentric. Pursuant to the Agency
Agreement, Tai Nam serves as purchasing agent and receives an agency fee equal
to seven percent (7%) of the gross invoiced value of products purchased by
Toymax NY (based on the factory purchase price of the merchandise). Until April
1997, the Company utilized Concentric as its purchasing agent on similar terms.
In fiscal 1997, the Company paid Concentric $1,420,768 in such agency fees and
in the three months ended June 30, 1997 paid Tai Nam $488,124 in agency fees.
Tai Nam's duties include arranging for the manufacturing of the Company's
products based on purchase orders placed with Tai Nam by the Company. In
addition, Tai Nam handles shipping documents, letters of credit, bills and
payments, serves as liaison with other vendors and performs quality control
functions for the Company. Pursuant to the Agency Agreement, Toymax purchases
products from Tai Nam at FOB Yien Tian prices. The Company pays all expenses
associated with the making of molds for new products and such molds are assets
of the Company. The term of the Agency Agreement ends on March 31, 1999.

In fiscal 1997, the Company purchased products from Tai Nam and Concentric
totalling $13.6 million and $20.6 million, respectively. The majority of the
Company's products are manufactured by Jauntiway, which is also owned by Mr.
Chu. In fiscal 1997, approximately 85% of the Company's products were
manufactured by Jauntiway (including some utility subcontractors) and such
production constituted approximately 85% of Jauntiway's overall production. See
"Business--Purchasing and Manufacturing."

Tai Nam and Concentric have historically provided extended payment terms to
the Company (longer than net 30 days). Historically, the Company has, from time
to time, relied on such extended payment terms. Tai Nam has agreed to continue
to provide such terms for the balance of fiscal 1998.

The Company believes that available borrowings under the State Street Credit
Facility, cash from operations and the net proceeds from the Offering to the
Company will be sufficient to meet the Company's working capital and capital
expenditure requirements and provide it with adequate liquidity to meet its
anticipated operating needs for the foreseeable future. The Company expects
approximately $1.0 million in capital expenditures in fiscal 1998.

As a part of the Company's strategy, the Company will evaluate potential
acquisitions of other toy businesses or product lines which the Company believes
would complement its existing business. As of the date of this Prospectus, the
Company has no present understanding or agreement with respect to any
acquisitions.

In connection with any future cash needs or acquisition opportunities, the
Company may incur additional debt or issue additional equity or debt securities
depending on market conditions and other factors.

29
<PAGE>
SEASONALITY

The Company's sales are seasonal in that a substantial portion of net sales
are made to retailers in anticipation of the Christmas holiday selling season.
Over the last three fiscal years, the net sales recorded in the second and third
quarters ranged between 66.4% and 84.1% of the total net sales in those fiscal
years. This pattern is expected to continue for the foreseeable future.
Differences in seasonal sales patterns between the U.S. Domestic Operation and
FOB Hong Kong Operation impact the gross profit percentage among quarters as
they each have differing gross profit percentages. For example, the FOB Hong
Kong Operation represented between 12.3% and 62.9% of net sales within quarters
while it represented 29.1% for the entire fiscal 1997 year. Selling and
administrative expenses include certain expenses that do not relate directly to
sales for the quarterly periods.

The result of these differences is that operating results are expected to
vary significantly by quarter and net losses are expected in the first quarter
of the fiscal year for the foreseeable future. Therefore, the Company's
financial results for a particular quarter may not be indicative of results for
the entire year.

The following table provides certain unaudited financial information for the
Company for each quarter in fiscal 1996 and 1997 and the quarter ended June 30,
1997. In management's opinion, this information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1996 1996 1996 1996 1997
----------- --------------- ------------- ------------- ----------- --------------- ------------- -----------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.... $ 4,151 $ 20,545 $ 11,472 $ 7,454 $ 2,679 $ 14,921 $ 21,398 $ 15,685
Gross
profit..... 423 5,963 4,112 2,523 312 5,934 7,817 6,783
Operating
income
(loss)..... (6,097) 353 (4,240) (1,636) (2,521) 2,198 784 2,359
Income (loss)
before
income
taxes...... (6,213) 522 (4,047) (2,320) (2,340) 2,317 611 2,078

<S> <C>
JUNE 30,
1997
-----------

<S> <C>
Net sales.... $ 7,091
Gross
profit..... 3,307
Operating
income
(loss)..... (357)
Income (loss)
before
income
taxes...... (521)
</TABLE>

INFLATION

The Company does not believe that the relatively moderate rates of inflation
in the United States in recent years have had a significant effect on its
operations. Although recent rates of inflation in Asia have resulted in an
increase in the cost of manufacturing the Company's products and such increased
costs have had a modest impact on margins, the Company does not believe that
inflation in Asia has had a materially adverse effect on its results of
operations.

EXCHANGE RATES

Transactions in which the Company purchases goods from manufacturers are
mostly effected in Hong Kong dollars, and accordingly, fluctuations in Hong Kong
monetary rates may have an impact on cost of goods. However, since 1983, the
value of Hong Kong dollar has been tied to the value of the United States
dollar, eliminating fluctuations between the two currencies. Despite the recent
announcement by Hong Kong's Financial Secretary that the Hong Kong Government is
determined to maintain such fixed exchange rate, there can be no assurance that
the Hong Kong dollar will continue to be tied to the United States dollar in the
future. Furthermore, appreciation of Chinese currency values relative to the
Hong Kong dollar could increase the cost to the Company of the products
manufactured in China, and thereby have a negative impact on the Company. See
"Risk Factors--Risks Inherent in International Operations; Currency Risks."

30
<PAGE>
NEW ACCOUNTING STANDARD

On March 3, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "EARNINGS PER SHARE." This pronouncement provides for the
calculation of Basic and Diluted earnings per share which is different from the
current calculation of Primary and Fully Diluted earnings per share. The effect
of adopting this new standard is not expected to be material.

NEW ACCOUNTING STANDARDS NOT YET ADOPTED

In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.

Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING
COMPREHENSIVE INCOME, establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.

SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A
BUSINESS ENTERPRISE, establishes standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.

Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.

31
<PAGE>
BUSINESS

COMPANY OVERVIEW

The Company creates, designs and develops innovative toys, which it markets
and sells in the U.S. and throughout the world. The Company has focused on
developing and marketing children's activity toys, including Creepy Crawlers,
Metal Molder and Magic Maker, girls' toys, such as Talking Tina, and action
toys, such as Laser Challenge, one of FAMILY FUN magazine's Toys of the Year in
1996 and currently among the leading selling toys in the U.S. Major strengths of
the Company include creativity in the development of new toys, such as Metal
Molder, which was named one of the top children's vacation products of 1997 by
DR. TOY, and the redevelopment and reintroduction of successful toy lines from
the past, such as Creepy Crawlers, which was named one of the top toys of 1996
by SESAME STREET MAGAZINE.

Toymax was founded in 1990 by four experienced toy industry executives:
David Chu, the Company's Chairman, Steven Lebensfeld, its President, Harvey
Goldberg, its Executive Vice President, and Kenneth Price, its Senior Vice
President of Sales and Marketing. Since the early 1980s these executives have
worked together in managing or founding toy companies or in customer-supplier
relationships. Each individual brings particular strengths to the management
team, Mr. Chu in manufacturing, Mr. Lebensfeld in product development, and
Messrs. Goldberg and Price in sales and marketing. In addition, these executives
have built a team of knowledgeable, highly skilled management and employees
whose collective toy industry experience enhances the Company's ability to
effectively execute its business plan.

Toymax conducts its sales activities through its wholly-owned subsidiaries,
Toymax NY and Toymax HK. Following the closing of the Offering, sales previously
conducted through Toymax HK will be conducted through Toymax Bermuda. U.S.
domestic sales, conducted by Toymax Inc., consist of sales of the Company's
promotional product lines to U.S. customers pursuant to customer purchase orders
("U.S. Domestic Sales"). Customers purchasing products on this basis include
Toys "R" Us, Kay-Bee Toys, F.A.O. Schwarz, Wal-Mart Stores, Inc., Kmart
Corporation and Target Stores, Inc. Sales conducted by Toymax HK Limited
("Toymax HK Sales") consist of sales on an FOB Hong Kong basis which are
generally based on letters of credit and which include sales of lower priced
basic products to U.S. and international retailers, including Toys "R" Us
International, Lojas Americanas (Brazil) and Blokker (Holland) and sales of the
Company's promotional product lines to approximately 40 international
distributors (including Mattel Inc. and Hasbro Inc.). The Company's products are
sold in over 50 countries around the world. In fiscal 1995, 1996 and 1997. U.S.
Domestic Sales constituted 78.3%, 61.8% and 70.9% of net sales, respectively,
with the balance being Toymax HK Sales.

The Company has generated net profits in four out of the last five fiscal
years. For the fiscal year ended March 31, 1997, Toymax had net sales of $54.7
million and a net income of $3.3 million. In fiscal 1996, the Company
experienced a net loss of $9.8 million. This was due principally to the
cancellation of orders and the failure by retailers to place re-orders during
the 1995 holiday season. As a result, the Company had to sell the excess
inventory at discounted prices which impacted both gross sales and net profits.
In order to lessen its exposure to any similar industry and retailer
developments in the future, in calendar 1996 the Company improved its operations
by: (i) limiting purchasing commitments on new products to foster increased
product sell-through rates at the retail level and to reduce inventory risks,
(ii) enhancing its inventory management system, with improved EDI tracking and
sales analysis with major retail customers, and (iii) expanding its product
concept preview process with selected retailers and distributors. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."

32
<PAGE>
such traditional methods as in-store demonstrations and couponing to support its
sales and marketing efforts.

Toymax currently contracts for all of its manufacturing requirements. Tai
Nam, based in Hong Kong, serves as the Company's purchasing agent and, through
an affiliated company, Jauntiway, manufactures a majority of the Company's
products. Jauntiway is an OEM toy manufacturer with two manufacturing facilities
in the southern portion of the People's Republic of China (the "PRC"), including
an ISO 9002 factory. Tai Nam and Jauntiway are owned by David Chu, the Chairman
and a principal stockholder of the Company. The Company believes that these
relationships give it several competitive advantages, such as better quality
control on merchandise, greater operating and financial flexibility, and
improved reliability and scheduling.

THE TOY INDUSTRY

According to the TMA, total domestic shipments of toys, excluding video
games and accessories, were approximately $13.9 billion in 1996 representing a
3.5% growth from $13.4 billion in 1995. According to the TMA, the United States
is the world's largest toy market, followed by Japan and Western Europe. The
three largest U.S. toy companies in 1996 were Mattel, Inc. ("Mattel"), Hasbro,
Inc. ("Hasbro") and Tyco Toys, Inc. ("Tyco") (which merged into Mattel in March
1997). In recent years, the toy industry has experienced a period of
consolidation, both at the retail and manufacturing level. However, many smaller
companies continue to compete in the design and development of new toys, the
procurement of licenses, the improvement and expansion of previously introduced
products and product lines and the marketing and distribution of toy products.

Many factors influence the success of a given toy or product line including
product design, play value, pricing, marketing, in-store exposure and product
availability. While the success of some toy categories vary from year to year,
other toy categories consistently perform well. Toys which form the backbone of
the toy business, are generally referred to as "evergreens", "core" or "staple"
toys. Toys with relatively successful but short life cycles are generally
referred to as "fad" items. Along with providing opportunities for fun and
learning, toys traditionally mirror technological progress, changes in social
attitudes and current customs and values from the adult world. Many of the toys
which garner the most attention reflect the latest technological advances,
incorporate characters made popular in other mediums or are innovative
extensions of core toy products.

Toy production is a labor intensive process requiring molding and shaping or
cutting and sewing, coloring, painting or detailing, assembling, inspecting,
packaging, shipping and warehousing. The substantial majority of the toys sold
in the U.S. are manufactured, either in whole or in part, overseas where labor
rates are comparatively lower than in the U.S. The largest foreign manufacturing
market is the PRC, followed by Japan and Taiwan. Most foreign production is
performed by independent contractors which use tools, molds and designs provided
by U.S. toy companies and which manufacture products under exclusive contracts.
While foreign manufacturing operations generally have relatively inexpensive
labor costs, such operations require greater lead times than domestic
manufacturing operations and also result in greater shipping costs particularly
for larger toys. The design, production and sales of toy products in the U.S.
are subject to various regulations.

Toy manufacturers sell their products either directly to retailers or to
wholesalers who carry the product lines of many manufacturers. There are
thousands of retail outlets in the United States which sell toys and games.
These outlets include: mass merchandisers, small, independent toy stores; gift
and novelty shops; warehouse clubs and mail order catalogues. Despite the broad
number of toy outlets, retail toy sales have become increasingly generated by a
small number of large chains, such as Toys "R" Us, Wal-Mart, Kmart and Target.
These chains generally feature a large selection of toys, some at discount
prices, and seek to maintain lean inventories to reduce their own inventory
risk. This concentration has tended to favor larger manufacturers which are able
to offer these retail chains broader product offerings, higher

33
<PAGE>
levels of advertising and marketing support, and consistent product support
through electronic data interchange and just-in-time delivery programs. The
Company believes that the leading toy retailers desire to have a greater number
of toy suppliers which offer a variety of quality, branded product lines and
which have the financial strength to support the retailers' product distribution
requirements.

While toys are sold year round, toy industry retail sales are heavily
weighted toward calendar third and fourth quarters when many toys are purchased
as holiday gifts. Each calendar year begins with a major international toy fair
held in Hong Kong in the first week in January. This trade show is expanded and
repeated in New York in the middle of February. During the January/February
period, additional toy fairs are held in London, Paris, Milan, Nuremberg,
Valencia and Dallas. The toy fairs allow manufacturers to display their current
lines and begin the process of generating purchase orders for the important
holiday season. Due to the seasonality and long lead times required for foreign
production, retailer buying activity tends to significantly lead production and
shipment.

Licensing is a major influence on the toy industry affecting virtually all
product categories. Licensing is the business of leasing the right to use a
legally protected name, graphic, logo, saying or likeness in conjunction with a
product, promotion or service. Licensing is usually accomplished by a formal
agreement between the owner or agent of the licensed property (the licensor) and
the prospective licensee and typically defines the limits of the license, the
standards to be maintained and the compensation (royalties) to be paid for the
license.

The toy industry is also experiencing a shift toward greater consolidation
of retail distribution channels, such as large specialty toys stores and
discount retailers, including Toys "R" Us, Wal-Mart, Kmart and Target, which
have increased their overall share of the retail market. This consolidation has
resulted in an increased reliance among retailers on the large toy companies
because of their financial stability and ability to support products through
advertising and promotion and to distribute products on a national basis. Such
consolidation may have a negative impact on smaller toy manufacturer such as the
Company. See "Risk Factors -- Changes in the Retail and Toy Industries."

STRATEGY

The Company has been successful in achieving market penetration, with
revenue of $54.7 million in fiscal 1997 and has been profitable in four of the
past five fiscal years. With an established infrastructure now in place, the
Company is poised to grow utilizing the proceeds from the Offering. The key
elements of the Company's growth strategy are to capitalize on its existing
successful core brands by extending its product lines, expand into new core
product categories, expand into traditional spring toys, develop and penetrate
new markets and continue to license recognized brand names and characters to
incorporate in its products.

EXTEND PRODUCT LINES OF EXISTING CORE BRANDS. The Company intends to
capitalize on the success of its existing core brands by building a pipeline of
complementary products and accessories. Product line extensions under the
Company's brands are intended to provide increased sales and stability. For
example, during 1997, the Company introduced the girl's version of Metal Molder,
called Precious Metals, and added new products to its Creepy Crawlers product
line. In addition, the Company capitalized on the success of its Laser Challenge
brand with the introduction of a number of accessories, games and products which
enhance the play experience.

34
<PAGE>
entered the action toy category in 1996 with Laser Challenge and recently formed
Craft Expressions, Inc. to enter the adult craft and activities market. During
the past three fiscal years, 82.7% of the Company's net sales have been
generated from internally developed toys. In addition, senior management has
been in the toy business for over two decades and has developed a large network
of free-lance toy inventors and other independent designers from which to
acquire the rights to market toys developed by these designers. Finally, the
Company intends to pursue acquisitions of toy companies and product lines which
either complement or enhance the Company's current products or allow the Company
to expand into new market segments.

EXPAND INTO TRADITIONAL SPRING TOYS. The Company recognizes the importance
of decreasing its reliance on sales made in the third and fourth quarters of the
calendar year by expanding into product categories with traditionally strong
sales in the first and second calendar quarters and thereby further leveraging
its distribution channels. In the first two calendar quarters of 1997, the
Company had net sales of $22.8 million as compared to net sales of approximately
$10.1 million for the same period in 1996, primarily as a result of the
introduction of Laser Challenge. Opportunities for new products will be
evaluated particularly in the categories of action toys and water toys.

PRODUCTS

Toymax focuses on developing and marketing innovative toy products in a
number of categories including action toys, children's activity toys and girls'
toys. The Company established itself in each of these categories by
incorporating sophisticated technology into a number of its toy products,
thereby enhancing the play experience and broadening the demographics to which
such products appeal. The Company's innovative use of sophisticated technology
includes the incorporation of voice microchips in its line of dolls, the
development of Laser Challenge's infra-red technology and the use of metal alloy
beads which

35
<PAGE>
melt at relatively low temperatures in Metal Molder products. The following
table depicts the Company's net sales, as a percentage of total net sales, by
product category for the periods indicated:

<TABLE>
<CAPTION>
FISCAL YEAR QUARTER ENDED
------------------------------- ---------------
PRODUCT CATEGORY 1995 1996 1997 JUNE 30, 1997
- ---------------------------------------------------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Action Toys......................................... 0.0% 0.0% 48.6% 74.6%
Children's Activity Toys............................ 87.3 83.0 34.4 18.4
Girls' Toys......................................... 3.4 12.9 7.8 4.2
Other............................................... 9.3 4.1 9.2 2.8
--------- --------- --------- -----
TOTAL............................................... 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>

The Company's major products are as follows:

<TABLE>
<CAPTION>
1997-98 PRODUCT
CATEGORY CURRENT PRODUCTS AND BRANDS INTRODUCTIONS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Action Toys LASER CHALLENGE-TM- LASER CHALLENGE-TM-
Patrol Set EX-D Super Laser; Back Sensor; Super
Dual Target Set Comp Set; Shoot Back B.A.R.T.; Laser
Team Force Set Trap; Capture the Flag; Laser Alley

LASER CHALLENGE PRO-TM-
Competition Pack; Clash Pack

Children's Activity Toys CREEPY CREEPY
CRAWLERS-Registered Trademark- CRAWLERS-Registered Trademark-
Creature The Lost World: Jurassic
Creator-Registered Trademark- Park-Registered Trademark- Mold
Workshop Paks; Eerie Species Mold Paks;
3-D Creature Kit Mold Packs; Mutant Squad Mold Packs
Plasti-Goop-Registered Trademark-
Compounds

METAL MOLDER-TM- METAL MOLDER-TM-
Die Cast Factory The Lost World: Jurassic
Molding Kit Assortment Park-Registered Trademark-Molding
Kit; Classic Chevrolet Molding Kit;
Blister Carded Assortment; Detailing
Kit

PRECIOUS METALS-TM-
Boutique; Molding Kit Assortment

MAGIC MAKER-Registered Trademark- MAGIC MAKER-Registered Trademark-
Tattoo Graphix; Super Sealer; Krinkle Art
Embosser; Bead Art; Soap Maker Magic Crystals
Fuzz Art
Foil Art
Magic Grow Art

ORIGINAL TOOLMASTER
WORKSHOP-Registered Trademark-
Pocketools-Registered Trademark-
Power Mites-Registered Trademark-

Girls' Toys TALKING TINA-Registered Trademark- BRUSH 'N MAGIC-REGISTERED TRADEMARK-
TWINKLES-Registered Trademark-
BUBBLE TOTS-TM-
</TABLE>

36
<PAGE>
ACTION TOYS

The Company entered the Action Toys category with the introduction of Laser
Challenge in 1996. In addition to appealing to the traditional target market of
boys between the age of four and nine, Laser Challenge's appeal has extended
beyond that age range, as well as to girls, thus offering an expanded universe
of potential consumers.

Since its introduction, the Laser Challenge line has found acceptance among
retailers and consumers and has become the Company's strongest brand. Based upon
this initial success, the Company introduced a number of line extensions at the
International Toy Fair in February 1997 to enhance the play experience and
broaden the targeted age group. These products have staggered introduction dates
throughout 1997. The Company has recently introduced Laser Challenge Pro, an
enhanced version of the original Laser Challenge product, to retailers and
anticipates customer shipment in the fall of 1997.

LASER CHALLENGE. The Laser Challenge brand was developed to capitalize on
the growing worldwide popularity of indoor laser game arenas. The features of
this product permit an expanded play experience including outdoor play, and
broadens the appeal to older consumers. In designing the Laser Challenge system,
the Company has developed an advanced infra-red light technology which is
effective at longer firing distances. The original Laser Challenge system
consisted of a vest incorporating a target and scoring system, a handheld laser
and B.A.R.T., a roaming robot target. Currently, the Company has two patents
pending for design and utility covering the Laser Challenge system. In 1996,
Laser Challenge was honored as one of the top Toys of the Year by FAMILY FUN
MAGAZINE and was presented with an Honors Award by the 1996 NATIONAL ASSOCIATION
OF PARENTING PUBLICATIONS AWARDS. As of May 1997, the Laser Challenge Team Force
set was the top selling outdoor sports activity toy in the U.S. (TRSTS Report).
The basic Laser Challenge set, consisting of one handheld laser and one target,
retails for approximately $20.00.

The line extensions for Laser Challenge in 1997 include the following
products: (i) the Laser Challenge Pro Series (discussed below), (ii) Laser Trap,
a timed laser blaster that fires over 25 feet in 360 degrees to extend a
player's firing range and add to the element of surprise; (iii) Back Sensor,
which connects to the existing vest and scoring system to increase the number of
hit zones; (iv) EX-D Super Laser, which emits 25 rapid fire shots over 200 feet
for a faster and broader game play; (v) Capture the Flag, an electronic version
of the familiar kids game; and (vi) Laser Alley, the Laser Challenge version of
an arcade shooting and target game with lights and sound.

LASER CHALLENGE PRO. Consistent with the Company's efforts to continually
extend its successful products, the Company recently introduced the Laser
Challenge Pro system, a technologically advanced, higher priced version of the
Company's Laser Challenge brand. Laser Challenge Pro has been named a finalist
for 1997 Toy of the Year by FAMILY FUN MAGAZINE. In addition to appealing to
current Laser Challenge customers, the look and features of this system are
intended to have broad appeal to a number of additional consumer segments
including older indoor laser game arena enthusiasts. The Laser Challenge Pro
allows for firing distances of up to 300 hundred feet, and permits a large
number of game playing features to be programmed into the equipment. The
strategic thinking and planning required to use these features heighten the
intensity and excitement of the game play. Furthermore, the Laser Challenge Pro
is compatible with the Laser Challenge product line, allowing customers of both
products to play together. The Laser Challenge Pro is offered in both single and
dual handheld laser and vest packages, with the basic set, the Competitor Pack,
retailing for up to $70.00.

CHILDREN'S ACTIVITY TOYS

Children's Activity Toys is the Company's most expansive product segment
which focuses on children between the ages of four and ten. As evidenced by the
success of Creepy Crawlers, Metal Molder and Magic Maker, the Company has shown
the ability to extend product lines with accessories and related products.

37
<PAGE>
CREEPY CRAWLERS. In 1992, the Company introduced the Creepy Crawlers brand,
a re-designed version of the classic and well-known children's toy from the
1960's. The basic product consists of a real working oven powered by a light
bulb, creature and insect molds and Plasti-Goop compound. After the Plasti-Goop
compound is poured into the mold and baked in the oven for approximately 10
minutes, it turns into a plastic toy creature. The oven is child safe and
Underwriters Laboratories approved. The Company owns or controls a number of
patents which cover the design and process of Creepy Crawlers. In 1996, Creepy
Crawlers was among the top toys identified by SESAME STREET MAGAZINE.

Since 1992, the Company has sold over three million Creepy Crawlers ovens.
Due to the Company's introduction of extension products, such as new play packs,
over 20 different molds and multi-color and textured Plasti-Goop compound,
children retain their interest in the toy for a longer than average period.
Sales of accessories, which range in price from approximately $6.00 to $13.00,
provide re-occurring sales (on average approximately four additional accessory
purchases for each oven sold).

The Company constantly strives to keep the Creepy Crawlers brand fresh and
exciting. Among the strategies followed is the application of carefully selected
licensed properties. In 1994, the Company successfully expanded the brand to
include licensed character mold sets such as POWER RANGERS, LOONEY TUNES, BATMAN
and SPIDERMAN. In 1997, the Company will market an assortment of mold packs
under the THE LOST WORLD: JURASSIC PARK license. In 1996, the Company
re-designed, re-packaged and reduced the price point of the Creepy Crawlers oven
to insure that the brand was current with pricing sensitivities and the evolving
interests of children.

Based on the success of the Creepy Crawlers brand name to date, the Company
has entered into a licensing agreement with Farley's Foods, a major candy
manufacturer, to market Creepy Crawlers Fruit Snacks. In addition to licensing
revenues which contribute to seasonal and non-seasonal revenue for the Company,
management believes that greater brand awareness amongst consumers of Creepy
Crawlers increases sales of this product line. The Fruit Snacks packaging is
also a vehicle for the Company to cost effectively implement cross-promotions.

METAL MOLDER. Introduced in 1996, the Metal Molder Die Cast Factory enables
children to create die-cast collectible figures and vehicles utilizing a child
safe electric oven, molds and metal alloy beads. Previously, there had never
been a product with this concept available in the retail market. Metal Molder
was named one of DR. TOY'S BEST CHILDREN'S VACATION PRODUCTS for 1996. The
Company has two patents pending on the Metal Molder for utility and design.
Since the product was introduced, the Company has sold over 165,000 ovens. Metal
Molder's appeal extends to boys older than the core user base for activity toys.
Based on the success of the brand, the Company has expanded the product line for
1997 to include CLASSIC CHEVROLET and THE LOST WORLD: JURASSIC PARK molding
kits. The basic Molder Die Cast Factory has a retail price of approximately
$30.00.

PRECIOUS METALS. Based upon the success of the Metal Molder Die Cast
Factory, the Company introduced the Precious Metals Boutique to retailers at Toy
Fair in February 1997 and anticipates customer shipment in the third quarter of
calendar year 1997. This product, which utilizes the same technology as Metal
Molder, is designed to appeal to girls. With the Precious Metals Boutique, girls
will be able to make die-cast metal jewelry and collectible pieces in a wide
range of traditional styles including animals, angels and contemporary shapes
like peace symbols and "best friend" heart necklaces. The retail price for this
product is approximately $30.00.

MAGIC MAKER. Magic Maker is the umbrella brand name for a complete line of
activity toys, priced to sell year round and to be merchandised together as a
category. This line consists of a range of products including TATTOO
GRAPHIX-TM-, with which children create water color based tattoos which are
removable with soap and water. This product, currently entering into its fourth
year of sales, is available in five different sets including one featuring THE
LOST WORLD: JURASSIC PARK license. This product has a retail price of
approximately $10.00. Other products include BEAUTY SOAP MAKER-TM-, a craft
activity kit which molds soap

38
<PAGE>
into a variety of shapes; BEAD ART-TM-, a craft activity kit which decorates
various shaped figures with colored beads; SUPER SEALER-TM-, LAMINATION STATION,
a product designed for laminating pictures, baseball cards and other items
children want to protect; THE EMBOSSER-TM-, an activity kit which creates a
variety of paper objects with embossed figures and lettering; MAGIC GROW-TM-
Paint activity set creates a 3-D picture; FUZZ ART-TM- activity sets allows
children to create either "fuzzy" pictures or figurines; FOIL ART-TM- activity
sets create pictures with shimmery foil; MAGIC CRYSTALS-TM-, which creates
jewelry and other items using the Magic Crystals and water; and KRINKLE ART-TM-
activity set creates a vast variety of paper creations. These products, several
of which are available in both regular and deluxe versions, are offered at
retail prices of between $5.00 and $10.00.

TOOLS. Tools fulfill a basic role-play pattern. The Company has three
distinctive product lines which address this play pattern; THE ORIGINAL
TOOLMASTER WORKSHOP, POCKETOOLS and POWER MITES. The Original Toolmaster
Workshop combines six of the most popular power tools into one childsafe
workshop which enables children to complete real woodworking projects. This
product retails for approximately $20.00. Pocketools are die cast metal,
miniaturized working replicas of a complete set of tool box tools. There are a
total of eight different tools, with a retail price of $1.99 each. Power Mites
are an assortment of junior sized, battery operated power tools, each of which
works just like a full-sized version. Power Mites are offered at retail prices
of under $10.00.

GIRLS' TOYS

The girls' fantasy play and doll marketplace is highly competitive and
promotional in nature. According to the TMA, dolls posted the largest percentage
increase in shipments over any other toy category in 1996. The Company's
strategy has been to develop products which have features that can be
demonstrated at the store level, such as through "Try Me" packaging or through
packaging visuals, rather than to compete through advertising.

TALKING TINA AND OTHER DOLLS. Talking Tina is a complete line of 11 1/2
inch talking fashion dolls and accessories. Using microchip technology which was
introduced in 1993, the Company is able to offer Talking Tina dolls which speak
one of fourteen different languages. The line is updated every year to remain
current with all of the latest fashion and style trends. The Company also offers
a complete line of soft furniture, scaled to fit Talking Tina. In addition, the
Company offers other competitive fashion dolls. The dolls retail for between
$6.00 and $10.00 and the furniture for approximately $8.00 to $10.00 per set.

TINY TWINKLES. The Tiny Twinkles product incorporates the traditionally
popular elements of motion and light into a line of 3 1/2 inch dolls. In
addition to offering moveable heads and arms, Tiny Twinkle's fiber optic
technology allows a child to light up parts of the doll with the touch of a
button. Currently, there are six assorted styles of Tiny Twinkles with retail
prices that range from approximately $5.00 to $6.00.

BRUSH N' MAGIC. Using its knowledge of microchip voice technology, the
Company recently introduced this line of 16 inch "talking" dolls. Each doll is
programmed with ten different sayings, which are activated by brushing the
doll's hair with her special brush, or holding the doll's hand. Retail prices
for the doll range from approximately $13.00 to $17.00.

BUBBLE TOTS. The Bubble Tots product is a small posable doll which blows
endless streams of bubbles and incorporates the popular play element of hair
play. The dolls are "kid-powered" requiring no batteries or external power
source for operation. These dolls are offered at retail prices of less than
$10.00.

ADULT CRAFTS AND ACTIVITIES

In 1996, the Company formed Crafts Expressions, Inc. to develop and market
adult craft and activity products. The Company believes that the adult crafts
and activities market presents an opportunity to capitalize on the Company's
success with activity toys while expanding into a new product category, thus
offering the Company a broader market segment.

39
<PAGE>
CREATIVE CASTINGS-TM-. The Creative Castings Sandstone Casting Kit allows
craft lovers to participate in the entire process of sandstone sculpting, from
designing the mold to casting the finished piece. Users can make exact replicas
of their favorite home decor items such as picture frames and wall plaques.
Creative Casting kits are sold in two sizes and offer up to twelve decorative
colors of sandstone compound. The basic kit retails for approximately $10.00
while the enhanced product retails for approximately $15.00.

LIQUID CERAMICS-TM-. Liquid Ceramics is a new compound and molding system
which allows adults to bake a special liquid, thereby creating an assortment of
decorative items. The product comes in five different craft kits, each offering
the ability to create intricate ceramic-like items such as mosaic picture
frames, solid-casted Christmas ornaments, door and drawer knobs, and other home
decoratives. Liquid Ceramics retails for between $13.00 and $20.00.

PRODUCT DESIGN AND DEVELOPMENT

The Company believes that one of its greatest strengths is in new product
development. The Company's product development efforts are led by Steven
Lebensfeld, the Company's President. Mr. Lebensfeld has worked in the toy
industry for over 20 years. In that time he has developed numerous innovative
and successful products. Based on his experience, Mr. Lebensfeld has helped the
Company to build a knowledgeable in-house product development team and a network
of independent designers to create new products. The Company's Research and
Development Department is comprised of fourteen employees. Total
Company-sponsored research and development expenses for fiscal 1995, 1996 and
1997 were $3.7 million, $2.0 million and $1.8 million, respectively and
approximately $0.3 million and $0.5 million for the three months ended June 30,
1996 and June 30, 1997, respectively.

INTERNAL DEVELOPMENT. The Company has been successful in coordinating the
efforts of its Marketing and Research and Development Departments to design and
develop the majority of its toy concepts and products. The Company combines the
disciplines of graphic design, ergonomics, engineering and child psychology to
create products which are intended to maximize the play value for children.
Further, the Company has been a leader in utilizing current technologies to
redesign and redevelop major brands and toy products from the past, E.G. Creepy
Crawlers. Internally developed products represented 82.1%, 85.2% and 81.6% of
net sales in fiscal 1995, 1996 and 1997, respectively, and 85.3% for the quarter
ended June 30, 1997. See "Business -- Products."

The Company uses several consumer market research techniques to test product
concepts and prototypes, including focus groups. In addition, the Company meets
with its largest retail customers and distributors to preview products and
determine the level of interest before production. Management believes the
involvement and commitment of the retail customers in the early stages of
product development benefit the Company and mitigates the risk of a lack of
market acceptance for new products.

The Company has issued patents and patents pending covering the following
products: Creepy Crawlers Workshop oven, Creature Creator oven, Laser Challenge
and Metal Molder.

INDEPENDENT DESIGNERS. The Company recognizes the importance of independent
designers as a source for new product concepts. As a result, the Company
continually evaluates new product ideas generated by a number of outside
designers to maintain access to a wide range of development talent. When a
product is developed based on the idea presented by an independent designer, the
Company enters into a license agreement with the designer. Typically, the
license agreement provides for the payment of royalties between 3.0% and 7.0% of
the net sales of the new product.

LICENSING

Although the Company has not significantly relied on entertainment-related
licenses, the Company has marketed and continues to market versions of its core
product lines based on licensed popular children's characters and trademarks
from major entertainment companies and other widely-known

40
<PAGE>
corporate trademarks. Currently, the Company has license agreements with
Universal Studios Licensing, Inc., for the use of the THE LOST WORLD: JURASSIC
PARK name, Disney Enterprises Inc., for the use of the 101 DALMATIANS and TOY
STORY name, and the Chevrolet Motor Division of General Motors, for the use of
the CHEVROLET, CORVETTE and CAMARO brand names. The Company intends to continue
to develop its licensed product line by targeting licensing opportunities where
it can take advantage of licensor advertising, publicity and media exposure. The
Company has also granted licenses based upon its Creepy Crawlers brand for which
it receives royalties. Currently, Farley Foods candy is marketing a Creepy
Crawlers Fruit Snack in a number of fruit flavors.

In return for the use of the licensed character or brand name, the Company
typically pays licensing fees of up to 16% of net sales from products marketed
under the subject license. Furthermore, the acquisition of a license involves
the payment of non-refundable guarantees.

Sales of products utilizing licenses accounted for approximately 12% and 10%
of the Company's net sales during fiscal 1996 and fiscal 1997, respectively, and
2.5% for the quarter ended June 30, 1997. Though development of products under
entertainment licenses can lead to ready acceptance in the marketplace, such
success may be limited by the short life cycle of most popularly licensed
characters and brand names. Accordingly, the Company generally looks to
establish a product in the marketplace prior to expanding upon the product's
success by introducing versions under licensed names.

SALES AND DISTRIBUTION

The Company's sales are comprised of (i) U.S. Domestic Sales and (ii) Toymax
HK Sales, which are comprised of sales to international retailers and
distributors and to U.S. retailers on an FOB Hong Kong basis. The following
table depicts the Company's net sales in these two categories for the last three
fiscal years:

<TABLE>
<CAPTION>
QUARTER ENDED JUNE
FISCAL YEAR 30,
------------------------------- --------------------
(IN THOUSANDS)
-----------------------------------------------------
SALES 1995 1996 1997 1996 1997
- ------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
U.S. Domestic Sales.......................................... $ 55,264 $ 26,951 $ 38,793 $ 993 $ 4,459
Toymax HK Sales.............................................. 15,359 16,671 15,890 1,686 2,632
--------- --------- --------- --------- ---------
Net Sales.................................................... $ 70,623 $ 43,622 $ 54,683 $ 2,679 $ 7,091
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

U.S. DOMESTIC SALES. The Company's U.S. sales activities are conducted
through its nationwide network of independent sales representatives and, with
respect to certain major accounts, by senior management. Comprised of more than
31 sales executives and nine sales organizations at June 30, 1997, this sales
network maintains close customer relationships, develops new accounts and
presents new products to its established customers. The Company's leading U.S.
customers (not including FOB Hong Kong sales to the U.S.) include major toy
retailers, mass merchandisers, department stores and catalog companies. See
"Business-Customers." Major toy retailers including Toys "R" Us and Kay-Bee Toys
accounted for 66.5% and 58.5% of sales in fiscal 1997 and for the quarter ended
June 30, 1997, respectively. Mass merchandisers including Wal-Mart, Kmart and
Target accounted for 26.3% and 19.8% of sales for the same periods. Department
stores and catalog companies including JC Penney and Service Merchandise
accounted for another 1.9% and 2.6% of sales in fiscal 1997 and for the quarter
ended June 30, 1997, respectively. The Company's top three U.S. Domestic
accounts for fiscal 1997, Toys "R" Us, Wal-Mart and Kay-Bee, accounted for 74.7%
of sales for Fiscal 1997. U.S. Domestic Sales constituted 78.3%, 61.8% and 70.9%
of net sales in fiscal 1995, 1996 and 1997, respectively and 37.1% and 62.9% of
net sales for the quarters ended June 30, 1996 and June 30, 1997, respectively.

41
<PAGE>
TOYMAX HK SALES. Toymax HK Sales are comprised of sales to international
retailers and distributors and to certain U.S. retailers. Such sales are
conducted on an FOB Hong Kong basis and generally require the opening of a
letter of credit. Since its inception in 1990, Toymax has emphasized
international sales, and today Toymax's products are sold in over 50 countries
worldwide. The Company's international sales network consists of 40
international distributors and nine international sales representative
organizations. For fiscal 1997, 50.8% of Toymax HK Sales were made to
distributors while the balance of such sales were made to retailers through
sales representative organizations. Management believes that the toy market in
many countries is less mature than the U.S. market and provides the Company with
significant growth opportunities. In fiscal 1995, 1996 and 1997, Toymax HK Sales
accounted for 21.7%, 38.2% and 29.1% of net sales, respectively. Toymax HK sales
accounted for 62.9% and 37.1% of net sales for the quarters ended June 30, 1996
and June 30, 1997, respectively.

The Company's international distributors are based in over 40 countries,
including Argentina, Australia, Bahrain, Belgium, Brazil, Canada, Colombia,
Costa Rica, Cypress, Denmark, Dominican Republic, Ecuador, Egypt, El Salvador,
Finland, France, Greece, Guatemala, Hong Kong, Holland, Israel, Italy, Jordan,
Kuwait, Lebanon, Mexico, Norway, Panama, Peru, the Philippines, Portugal, Qatar,
Saudi Arabia, Singapore, South Africa, Spain, Sweden, Turkey, U.K., Uruguay and
Venezuela. Pursuant to the Company's distribution agreements, orders by most
distributors must be secured by the issuance of letters of credit to the
Company. Each of the distribution agreements generally cover one or more product
lines and have termination dates between December 1997 and December 1999.

The Company maintains "house accounts" which involve direct sales by the
Company to certain major international retailers. Such "house accounts" are not
covered by the Company's distribution agreements or sales representative
agreements. Major international retailers to which the Company sells directly
include Toys "R" Us International, Lojas Americanas, Intertoys (in Holland) and
Woolworth (in the U.K.)

SALES AND CUSTOMER SUPPORT

The Company employs a number of methods to bolster sales of its products.
Toymax encourages the consumer to contact the Company, rather than the retailer,
upon discovery of a problem with a product. In furtherance of this policy, there
is a 24 hour toll free customer service telephone line available to answer
questions related to the Company's products. In certain instances, the Company
has selectively provided price protection to retailers by making any price
reductions (i.e. discounts) effective as to certain products then held by
retailers in inventory.

CUSTOMERS

The Company made sales, directly or indirectly through distributors, to over
100 retailers in approximately 50 countries during fiscal 1997. The following
table sets forth certain of the Company's current customers:

<TABLE>
<CAPTION>
MASS
MERCHANDISERS TOY STORES DEPARTMENT STORES WAREHOUSE CLUBS CATALOG DRUG STORES
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Wal-Mart Toys "R" Us JC Penney Price Club Service CVS
Kmart Kay-Bee Toys Sears Sams Club Merchandise Rite Aid
Target FAO Schwarz Bradlees Costco
Caldor BJs
Ames
Hills
</TABLE>

The Company's top five customers accounted for approximately 69.0% and 62.6%
of the Company's net sales in fiscal 1997 and for the quarter ended June 30,
1997, respectively. Only Toys "R" Us accounted for more than 10% of net sales
during such periods.

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<PAGE>
MARKETING

The Company employs a variety of methods to market its existing and new
products. New toys, existing toys and line extensions are marketed primarily by
members of the Company's executive and sales management at the Company's
showrooms in Hong Kong and New York during major international toy shows. The
Company is represented at additional toy shows both domestically and
internationally. The Company believes that most of its current and prospective
customer base is very active at these toy shows and, therefore, the Company
spends significant resources in the development of its marketing program for
these shows.

In addition, color product catalogs are used to assist in marketing the
Company's core product lines and new product introductions. The catalogs, which
include a detailed price list, are used by the Company's sales representatives
to make follow-up customer presentations, take orders and develop new business
opportunities.

Product packaging and placement is a large part of the Company's overall
marketing strategy. The Company's products are sold in brightly colored,
eye-catching packages with strong brand identity. All packaging must meet strict
guidelines for communication effectiveness and for their ability to stand out
from the competitive clutter. Furthermore, the Company seeks prime shelf space
(including end caps and "power walls") in the stores of its major retail
customers.

The Company currently allocates a significant portion of its marketing
resources to television advertising, which it believes is the most cost
effective way to reach its primary target audience of children. The commercials
are run on national television and in local spot television markets to support
the promotional efforts and distribution patterns of its key retailers. The
Company's internal marketing team produces commercials, plans and executes media
buys in conjunction with outside consultants who are experts in their respective
fields.

The Company also relies on public relations and promotional programs to
generate excitement about its key brands. The Company currently is sponsoring
promotional demonstrations and free samples of its Laser Challenge product at
Major League Baseball games around the country, and has or currently is
participating in sampling programs with the Boys and Girls Clubs of America,
selected summer camps which belong to the American Camping Association, and is
part of a traveling road show visiting key food retailers and events around the
country. In addition, the Company has been running a Creepy Crawlers Collectors
Club for four years, and has just established the Laser Challenge League, a fan
club devoted to encouraging interest in the Laser Challenge system.

The Company has a worldwide web site (http://www.laserchallenge.com) on the
Internet which features its products and provides information about new products
including release dates. In addition, the website allows the Company to gather
important marketing information directly from consumers. Information contained
on the Company's website is not a part of this Prospectus and must not be relied
upon in evaluating the Company, its products or business or an investment in the
Common Stock offered hereby.

The Company also employs traditional marketing methods such as couponing and
in-store demonstrations adjacent to its products.

PURCHASING AND MANUFACTURING

PURCHASING

The Company currently contracts for all of its manufacturing requirements.
Management believes that this practice provides the Company with the most
efficient use of its capital at this time. Tai Nam, which is based in Hong Kong,
serves as the Company's purchasing agent pursuant to an Agency Agreement dated
April 1, 1997, as amended (the "Agency Agreement") between Tai Nam and Toymax
NY. Since the Company's founding, Tai Nam or its affiliate, Concentric Toys
Limited ("Concentric"), have served as the Company's purchasing agent. Tai Nam
and Concentric are owned by David Chu, the Chairman and a principal stockholder
of the Company. As the Company's purchasing agent, Tai Nam arranges for the
manufacturing of the Company's products based on purchase orders placed with Tai
Nam by the Company.

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<PAGE>

In addition, Tai Nam handles all shipping documents, letters of credit, bills
and payments, serves as liaison with other vendors and performs quality control
functions. For these services, Tai Nam receives an agency fee of 7% of the gross
invoiced value of products purchased by the Company. In fiscal 1997, Concentric
served as the Company's purchasing agent and was paid agency fees of $1,420,768
by the Company. For the first quarter ended June 30, 1997, the Company paid Tai
Nam agency fees of $488,124.

The Company believes that it has a favorable marketer-supplier relationship
with Tai Nam. Prior to the formation of Toymax in 1990, Steven Lebensfeld,
President of the Company, and Harvey Goldberg, the Executive Vice President of
the Company, each had a marketer-supplier relationship with Tai Nam. The Company
believes that the price, quality of merchandise, reliability, and the ability of
Tai Nam to meet the Company's timing requirements for delivery have been
comparable to, if not better than those available from unaffiliated third
parties.

The Company considers the terms of the Agency Agreement to be at least as
favorable to the Company as those which are customary in the industry. Upon the
closing of the Offering, all of the Company's affiliated transactions, including
those with Tai Nam, will be subject to the approval of the independent directors
of the Company's Board of Directors.

MANUFACTURING

As purchasing agent, Tai Nam arranges for the manufacturing of the Company's
products based on purchase orders placed with Tai Nam by the Company. The
majority of such products have been and are currently manufactured by Jauntiway
Investments Limited ("Jauntiway"). Jauntiway is an OEM toy manufacturer with two
manufacturing facilities in the southern portion of the PRC, including an ISO
9002 factory. Jauntiway is also owned by Mr. Chu. Since the Company's inception,
Jauntiway has been the Company's most important manufacturer and the Company has
been Jauntiway's leading customer. In fiscal 1997, the Company's product
purchases from Tai Nam and Concentric totalled $13.6 million and $20.6 million,
respectively. For the quarter ended June 30, 1997, the Company's payments to Tai
Nam for product purchases totalled $6.9 million. In fiscal 1997, approximately
85% of the Company's products were manufactured by Jauntiway (some utilizing
subcontractors), and such production constituted approximately 85% of
Jauntiway's overall production. In the quarter ended June 30, 1997, Jauntiway
manufactured 94% of the Company's products. The Company has entered into a
Manufacturing Agreement with Tai Nam and Jauntiway dated September 22, 1997.
This agreement contains standard manufacturing terms as well as providing that
the Company shall not be required to provide a letter of credit or other
security to Tai Nam or Jauntiway in connection with its purchase orders.

Jauntiway owns two manufacturing plants in the PRC. The first is located in
Pingshan Township, Shenzhen, and the second is located in a new facility in the
Township of Qingxi, approximately 30 miles north of Hong Kong in Dongguan,
Province of Canton. The Pingshan facility was opened in 1985 and was one of the
first modern factories opened in the Pingshan which is now home to a large
number of toy factories. The Pingshan facility is a 130,000 square foot ISO 9002
factory employs up to 1,500 workers. It offers a broad array of product
development and manufacturing capabilities, including model-making, extrusion,
vacuum, blow and injection plastic molding processes, as well as assembly,
sealing and warehousing operations. Jauntiway's second facility is a new 500,000
square foot factory located in Qingxi. This factory, which opened in 1997,
provides Jauntiway with significant additional production capacity as well as
additional capabilities by virtue of its in-house mold making and tooling
capabilities and large warehouse capacity. The new factory currently employs
approximately 1,000 people and is expected to employ up to 4,000 people when
fully completed in late 1997.

The Company considers the terms it receives from Jauntiway (through Tai Nam)
to be at least as favorable to the Company as those which are customary in the
industry. Upon the closing of the Offering, all of the Company's affiliated
transactions, including those with Tai Nam and Jauntiway, will be subject to the
approval of the independent directors of the Company's Board of Directors.

Manufacturing commitments are made on a purchase order basis. The Company
bases its production schedules on customer estimates and orders, historical
trends, the results of market research and current

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<PAGE>
market information. The actual shipments of products ordered and the order
cancellation rate are affected by consumer acceptance of the product line, the
strengths of competing products, marketing strategies of retailers and overall
economic conditions. Unexpected changes in these factors can result in a lack of
product availability or excess inventory in a particular product line. As a
result, the Company closely monitors market activity and adjusts production
schedules accordingly. The Company utilizes EDI programs maintained by certain
of its largest customers, which allows the Company to monitor actual store
inventories, and thereby to schedule its production to meet anticipated
re-orders. See "Risk Factors -- Risks Associated with Inventory Management."

Tai Nam and Jauntiway also source products or components from other
independent manufacturers located principally in the southern portion of the
PRC, particularly during peak production periods. These suppliers are selected
based on the quality of their products, prices and service. Tai Nam closely
monitors its suppliers' manufacturing operations, including quality control,
production scheduling and order fulfillment. Pursuant to the Agency Agreement,
the Company owns the tooling and molds for its products.

In June 1997, the United States extended the PRC's "MFN" status for one year
which allows products imported into the United States from the PRC to be
accorded normal import duties. The loss of Most Favored Nation status by the PRC
could result in a substantial increase in import duty for the Company's products
produced there and imported to the United States, which could adversely
materially affect the Company's business. See "Risk Factors -- Reliance on
Manufacturers Based in China; Trade Relations."

Transactions in which the Company purchases goods from manufacturers are
mostly effected in Hong Kong dollars, and accordingly, fluctuations in Hong Kong
monetary rates may have an impact on cost of goods. However, since the early
1980s, the value of the Hong Kong dollar has been tied to the value of the
United States dollar, reducing fluctuations between the two currencies. There
can be no assurance that Hong Kong dollar will continue to be tied to the United
States dollar. Furthermore, appreciation of Chinese currency values relative to
the Hong Kong dollar could increase the cost to the Company of the products
manufactured in the PRC, and thereby have a negative impact on the Company's
margins and a material adverse effect on the Company's financial condition and
results of operations. The exchange rate as of July 28, 1997 was HK$7.7398 to
US$1.00. See "Risk Factors -- Risks Inherent in International Operations."

The basic raw materials used by Jauntiway in manufacturing the Company's
products are petrochemical resin derivatives. Costs of petrochemical derivatives
are affected by demand and supply as well as the value of the United States
dollar in relation to foreign currencies, and have been subject to volatility in
recent years. There can be no assurance as to the timing or extent to which the
Company will be able to pass on any raw material price increases to its
customers.

In addition, a large portion of Jauntiway's petrochemical derivates are
imported from Taiwan via Hong Kong. Any disruption of trade between Taiwan and
the PRC may have a significant adverse impact on Jauntiway's operations and
therefore could have a significant adverse impact on the Company's results of
operations. See "Risk Factors- Reliance on Single Affiliated Manufacturer and
Potential Conflict of Interest" and "--Partial Reliance on Imports from Taiwan."

COMPETITION

The toy industry is highly competitive. Competition within the industry is
based on consumer preferences, order fulfillment, pricing and new product
development. In recent years, the toy industry has experienced rapid
consolidation, evidenced most recently by the acquisition of Tyco by Mattel. The
Company competes with many toy companies that have greater financial resources,
greater name recognition, larger sales, marketing and product development
departments and greater economies of scale. The largest United States toy
companies are Mattel and Hasbro. In addition, the Company considers Tiger
Electronics, Rose Art and Toy Biz, Inc. ("Toy Biz") to be among its major
competitors. Due to the low barriers to entry into the toy industry, the Company
also competes with smaller domestic and foreign toy manufacturers, importers and
marketers.

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<PAGE>
The toy industry is also experiencing a shift toward greater consolidation
of retail distribution channels, such as large specialty toys stores and
discount retailers, including Toys "R" Us, Wal-Mart, Kmart and Target, which
have increased their overall share of the retail market. This consolidation has
resulted in an increased reliance among retailers on the large toy companies
because of their financial stability and ability to support products through
advertising and promotions and to distribute products on a national basis. Such
consolidation may have a negative impact on the ability of smaller toy
manufacturers such as the Company to compete. See "Risk Factors -- Changes in
the Retail Industry."

SEASONALITY

Traditionally, the toy industry is a third and fourth calendar quarter
business. As such, the Company is subject to the seasonal nature of the
industry. In order to minimize its dependence on third and fourth quarter
calendar sales, the Company seeks to expand into product categories which are
traditionally popular in the first and second calendar quarters. Currently, the
Company markets the Toss 'N Splatter-TM-, Quick Bombs-TM-, Ballerina Shower
Tower-TM-, Laser Challenge accessories and Bubble Tots in an effort to boost
sales in this traditionally weak time of year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."

BACKLOG

The Company generally ships products to customers within three to six months
of the date an order is received. The Company's backlog, at August 31, 1997, was
approximately $39.4 million, compared to $24.3 million at August 31, 1996.
Because customer orders may be cancelled at any time without penalty, the
Company believes that backlog may not accurately indicate sales for any future
period. See "Risk Factors -- Risks Associated with Inventory Management."

GOVERNMENT AND INDUSTRY REGULATION

The Company is subject to the provisions of the Federal Hazardous Substances
Act, Federal Consumer Product Safety Act, the Flammable Fabrics Act and the
regulations promulgated under each such act. Such Acts empower the CPSC to
protect the public from hazardous goods. The CPSC has the authority to exclude
from the market goods that are found to be hazardous and require a manufacturer
to repurchase such goods under certain circumstances. The Company sends samples
of all of its marketed products to independent laboratories to test for
compliance with the CPSC's rules and regulations, as well as with the product
standards of the TMA. The Company is not required to comply with the product
standards of the TMA, but voluntarily does so. Similar consumer protection laws
exist in state and local jurisdictions within the United Sates as well as
certain foreign countries. The Company designs its products to exceed the
highest safety standards imposed or recommended either by government or industry
regulatory authorities. To date, the Company has not been found to be in
material violation of any governmental product standard with respect to the
Company's products.

The Company is not required by the U.S. government to obtain any quality or
safety approvals prior to sales in the U.S. However, prior to shipment, the
Company's products are tested by independent laboratories on behalf of the
Company and major retailers. The Company, however, is required to have and has
obtained CE approval, European's toy safety Standard, for its products sold in
Europe. In addition, the Company, together with Tai Nam, has obtained the
Chinese quality license for export commodities from the Chinese Import and
Export Commodity Inspection Bureau. Such license will expire on June 28, 1999.

INSURANCE

The Company currently maintains product liability insurance and an umbrella
liability policy. However, though the Company maintains what it considers to be
adequate insurance, any successful claim could materially and adversely affect
the reputation, prospects and results of operations of the Company. A successful
claim against the Company's insurance coverage could have a material adverse
effect on the Company's business and operations.

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<PAGE>
TARIFFS AND DUTIES

In December 1994, the United States approved a trade agreement pursuant to
which import duties on toys, games, dolls and other specified items were
eliminated effective January 1, 1995 from products manufactured in all MFN
countries (including the PRC). Increases in quotas, duties, tariffs or other
changes or trade restrictions which may be imposed in the future would have a
material adverse effect on the Company's financial condition, operating results
or ability to import products. In particular, the Company's costs would be
increased if the PRC's MFN status is revoked. The loss of MFN status for the PRC
would result in substantial duties on the cost of toy products manufactured in
the PRC and imported into the United States.

In 1996, the United States government proposed retaliatory trade sanctions
against the PRC, which would have included increased duties on selected
products, but would not have included the Company's products originating in the
PRC. The United States and PRC eventually agreed on settlement terms avoiding
these sanctions. Any future imposition of trade sanctions by the United States
and subsequent retaliatory actions by the Chinese government could result in
supply disruptions and higher merchandise costs to the Company. The Company
could attempt to mitigate the effects of an increase in duties by shifting its
manufacturing to other countries, but there can be no assurance that the Company
would be successful in this regard. See "Risk Factors--Reliance on Manufacturers
Based in China; Trade Relations."

In February 1997, the European Union (the "EU") adopted quotas on the
importation of certain toys as well as other products manufactured in China.
Such restriction has no effect on the Company's operations. On the other hand,
in 1995, Canada eliminated its tariffs on all dolls and most toy categories,
with the exception of certain toy sets and board games which will have their
duties eliminated over 10 years. Both the EU and Japan began implementing
Uruguay Round tariff reductions that, by 1999, will lower tariffs on several
other toy categories over a period of 10 years.

PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY

The Company owns or controls numerous patents and trademarks which limit the
ability of third parties to directly compete with Company in its major brands.
Key patents cover both the Creepy Crawlers Workshop oven as well as the Creature
Creator oven. Key trademarks include Creepy Crawlers-Registered Trademark-,
Plasti-Goop-Registered Trademark-, Talking Tina-Registered Trademark-, Laser
Challenge-TM-, Metal Molder-TM-, Tattoo Graphix-Registered Trademark- and Magic
Maker-Registered Trademark-. The Company has patents pending with regard to the
Metal Molder and Laser Challenge product lines.

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

To protect its proprietary know-how and technology, the Company requires its
employees and consultants to execute confidentiality agreements that prohibit
the disclosure of confidential information to anyone outside the Company. These
agreements also require disclosure and assignment to the Company of discoveries
and inventions made by such persons while employed by the Company. There can be
no assurance that these agreements will not be breached, that the Company will
have adequate remedies for

47
<PAGE>
any such breach or that the Company's confidential information will not
otherwise become known or be independently developed by competitors or others.

PROPERTY

The Company leases approximately 20,000 square feet of space in Plainview,
New York for its corporate offices. The lease has an annual rental obligation
which ranges from $315,000 in the first year to $365,171 in the sixth year,
followed by a decrease to $313,620 in the seventh year. This lease expires on
April 30, 2004.

In addition, the Company leases approximately 3,270 square feet of space at
the Toy Center-200 Fifth Avenue, New York, New York, to house its New York City
Showroom facilities. This lease has an annual rental obligation of $115,020 and
expires on April 30, 2003.

The Company rents approximately 1,628 square feet of space in Kowloon, Hong
Kong from David Chu, Chairman of the Company, which it uses as showroom
facilities. The monthly rent under this lease is $5,900 (HK $45,584). The lease
expires on August 1, 1998.

Pursuant to a lease expiring on September 30, 1997, the Company leases
approximately 48,943 square feet of space in Westbury, New York for warehousing
purposes. The lease has an annual rental obligation of $60,000.

The Company utilizes public warehousing facilities in Long Beach, California
and Tacoma, Washington and is charged based upon its usage of the facilities.

EMPLOYEES

At June 30, 1997, the Company had 54 full time employees based at its
Plainview, New York, headquarters. Of these, 23 of such employees worked in
operations and research and development, 17 worked in sales and marketing and 14
worked in finance and administration. The Company is not subject to any
collective bargaining agreements. Management believes that the Company's
relationship with its employees is satisfactory.

LEGAL PROCEEDINGS

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

In April 1997, Link Group International, a developer of toy games, filed a
complaint against the Company in the United States District Court for the
District of Connecticut, alleging breach of express and implied contracts,
unjust enrichment, misappropriation, conversion and tortious interference with
contract and seeking damages of $1.0 million. The substance of the allegations
are that the Company orally agreed to pay royalties to Link Group relating to a
laser action game allegedly conceived by Link Group, and then developed its own
game using ideas provided by Link Group. Upon motion to the court, the Company
has been granted an extension for its response. The Company intends to defend
the action vigorously, though there can be no assurance as to the outcome of
this lawsuit.

In April 1996, the Company filed a complaint against Saban Entertainment,
Inc. and Saban International, NY in the United States District Court for the
Southern District of New York. The Company alleged eight claims of breach of
contract and misrepresentation, seeking compensatory damages of $20 million. The
substance of the Company's allegations are that the defendants failed to
properly promote the Creepy Crawlers cartoon series in Europe, and failed to
adequately market the Creepy Crawlers property, as was required by an agreement
between the two parties. In addition, the Company alleged three claims of
misrepresentation and breach of contract, arising from the defendants alleged
breach of a license agreement between the parties. In connection with these
additional claims, the Company sought $2 million. In July 1996, the defendants
filed counterclaims against the Company, alleging breach of contract, an
accounting, a constructive trust, unjust enrichment and conversion, seeking in
excess of $750,000.

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Discovery in these matters is ongoing and the Company intends to prosecute and
defend these actions vigorously.

In November 1996, 4Kids Entertainment, Inc. ("4Kids") filed a complaint
against the Company in the Supreme Court of New York, New York County, alleging
breach of a Representation Agreement between the parties and seeking unspecified
damages. 4Kids alleges that the Company failed to pay royalties on a licensing
agreement with a candy manufacturer that 4Kids had allegedly procured for the
Company. In January 1997, the Company filed a counterclaim seeking $1.5 million
in damages, alleging breach of the Representation Agreement and fraudulent
misrepresentation. The Company intends to defend and prosecute these actions
vigorously.

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<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors, executive officers and certain other key employees of Toymax
are set forth below.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>

David Ki Kwan Chu.................................... 50 Chairman of the Board

Steven A. Lebensfeld................................. 44 President and Director

Harvey Goldberg...................................... 45 Executive Vice President and Director

Kenneth Price........................................ 35 Senior Vice President--Sales and Marketing

Carmine Russo........................................ 38 Chief Operating Officer

Andrew B. Stein...................................... 43 Vice President--International Sales

Amy L. Weltman....................................... 47 Vice President--Marketing

William A. Johnson, Jr............................... 44 Chief Financial Officer and Treasurer

Sanford B. Frank..................................... 44 General Counsel and Secretary

Jonathan Muir........................................ 36 Controller

Oren Asher........................................... 44 Director-elect*

Joel M. Handel....................................... 61 Director-elect*
</TABLE>

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

* Prior to the consummation of the Offering, Messrs. Asher and Handel will be
appointed to the Company's Board of Directors.

The business experience, principal occupations and employment, as well as
period of service, of each of the directors, executive officers and certain
other key employees of the Company during at least the last five years are set
forth below.

DAVID KI KWAN CHU, CHAIRMAN OF THE BOARD. Mr. Chu is a co-founder of Toymax
and has served as Chairman of Toymax (H.K.) Limited since its inception in 1990.
In this capacity, Mr. Chu, who is based in Hong Kong, is the senior executive in
charge of all of the Company's sourcing, manufacturing and strategic planning
activities. Mr. Chu became involved in the toy industry in 1966 when he joined
his father's plastic manufacturing plant. Under his influence, the manufacturing
plant diversified into the toy business. In 1972, he was named president of his
father's company and grew the manufacturing plant into one of Hong Kong's
leading OEM toy manufacturers. Mr. Chu serves as Chairman of Pingshan
Manufacturing Association, a local federation organized by a group of
manufacturers operating factories in Pingshan, and as the Vice Chairman of
Shenzhen Toys Association, a quasi-governmental organization devoted to
fostering toy industry development in China's Shenzhen Special Economic Zone.
Mr. Chu and his wife, Francis Shuk Kuen Leung, own and manage Tai Nam, the
Company's purchasing agent, and Jauntiway, the Company's leading manufacturer.
See "Business--Purchasing and Manufacturing" and "Certain Relationships and
Related Transactions."

STEVEN A. LEBENSFELD, PRESIDENT AND DIRECTOR. Mr. Lebensfeld is a
co-founder of Toymax and has served as the President and a Director of Toymax
Inc. since May 1990 and as a director of Toymax (H.K.) Limited since December
1995. Mr. Lebensfeld is the senior executive in charge of the Company's toy
design and development activities. In his 20 years of experience in the toy
industry, Mr. Lebensfeld has an

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extensive track record of founding and growing small businesses. In addition,
Mr. Lebensfeld holds over 13 patents for toy design as well as process
technologies. In 1992, he was responsible for the revitalization of the Creepy
Crawlers trademark, creating a core brand of activity products. Prior to his
involvement with Toymax, Mr. Lebensfeld founded and was President of Toy Biz
from 1987 to 1989. During his tenure there, Mr. Lebensfeld was responsible for
the exclusive arrangement of Toy Biz to license the rights for action figures
and accessories from the first Batman movie from Warner Bros. and for SPIDERMAN
and X-MEN action figures and accessories from the Marvel Comics group. Mr.
Lebensfeld started the Kidworks (H.K.) Ltd., FOB division of Panosh Place, Inc.
("Panosh") in 1985, and was responsible for the development of character
licensed product in Hong Kong which was distributed worldwide. In 1986, Mr.
Lebensfeld moved to the domestic side of Panosh's operations and created
successful product lines such as Zap-It and Laser Combat. Between 1984 and 1986,
Mr. Lebensfeld was Managing Director of HG Toys (H.K.) Ltd. During this time, he
created numerous toy product lines incorporating key licenses, such as CABBAGE
PATCH KIDS and DISNEY CLASSICS. These licenses were the cornerstone of the
international and domestic sales for the company, whose sales grew to $12
million in two years. Between 1979 and 1984, Mr. Lebensfeld was affiliated with
Regent Toys, a company he and Mr. Goldberg founded.

HARVEY GOLDBERG, EXECUTIVE VICE PRESIDENT AND DIRECTOR. Mr. Goldberg is a
co-founder of Toymax. He has been a director of Toymax (H.K.) Limited since
December 1995 and has served as Executive Vice President of Toymax Inc. since
September 1995. In this capacity, Mr. Goldberg is the senior executive in charge
of all of the Company's sales activities and both of Toymax's domestic and
interntional vice presidents of sales report to him. Prior to joining Toymax,
Mr. Goldberg served as a senior sales and marketing executive for Toy Biz, H-G
Toys (HK) Ltd., Regent Toys, H-G Canada and Grand Toys. Mr. Goldberg is a
director of MGI Software Corp., a public company traded on the Canadian
over-the-counter market.

KENNETH PRICE, SENIOR VICE PRESIDENT OF SALES AND MARKETING. Mr. Price is a
co-founder of Toymax. From its inception in May 1990 through September 1995,
Mr. Price served as Secretary of Toymax Inc., as well as holding key sales and
marketing positions with the Company. From September 1995 through May 1996, Mr.
Price served as Vice President of Sales and Marketing. Since May 1996, Mr. Price
has served as Senior Vice President of Sales and Marketing. In such capacity,
Mr. Price is in charge of the day-to-day domestic sales activities including
working directly with Toys "R" Us and Kay-Bee Toys and managing the Company's
domestic sales representative firms. Mr. Price supervises the Company's domestic
sales and marketing activities and is closely involved in the development and
distribution of Toymax's promotional television commercial advertising. Mr.
Price is also the Company's senior executive in charge of securing, negotiating
and maintaining licenses. Prior to joining Toymax, Mr. Price served as a
marketing and sales executive for Toy Biz and H-G Toys (HK) Ltd.

CARMINE RUSSO, CHIEF OPERATING OFFICER. Mr. Russo has served as Chief
Operating Officer for the Company since April 1997. In this capacity, Mr. Russo
reports directly to Mr. Lebensfeld and is responsible for the day-to-day
management of all operational and research and development activities including
design, development, purchasing, sourcing, production, shipping, and
warehousing. Prior to that position, Mr. Russo served as Vice President of
Operations and R&D for Toymax from December 1994 through March 1997. From
December 1987 to December 1994, Mr. Russo held various senior management
positions at Buddy L, a subsidiary of SLM International where he served as
Senior Vice President-Operations and was a member of their Operating Committee.
In this position, Mr. Russo was in charge of all Far East Operations for the
company, including toys, sporting goods, fitness products and apparel. Before
joining Buddy L, Mr. Russo was a development and production executive for H-G
Toys from January 1984 to November 1987. In this capacity, Mr. Russo lived in
Hong Kong and ran the Far East Operations for H-G Toys.

ANDREW B. STEIN, VICE PRESIDENT OF INTERNATIONAL SALES. Mr. Stein has
served as Vice President of International Sales for Toymax since March 1993. In
this capacity, Mr. Stein is responsible for managing all

51
<PAGE>
of the day-to-day international sales activities, including calling on existing
customers, developing new business accounts, managing sales representative firms
and working closely with the Company's research and development department in
connection with the development of new products. From December 1990 to March
1993, Mr. Stein served in a similar capacity at Tyco Playtime where he
contributed to the increase in international sales from $3 million to $12
million. Prior to that, Mr. Stein served as Vice President of International
Sales and Marketing at Nasta International. Mr. Stein has also served as an
executive for H-G Toys, Inc., Amtoy and Ideal Toy Corporation.

AMY L. WELTMAN, VICE PRESIDENT--MARKETING. Ms. Weltman has served as Vice
President of Marketing of Toymax Inc. since January 1996. Ms. Weltman has
day-to-day responsibility for advertising, public relations, licensing, sales
promotion, marketing and merchandising programs, and research. She is involved
in the development and execution of brand strategies, and in short and long term
strategic planning and product development. Prior to serving as Vice President
for the Company, Ms. Weltman served as a consultant to Toymax from July 1994 to
December 1996. From 1982 to 1994, Ms. Weltman was Senior Vice President of
Account Services at TSR Advertising, where she was responsible for the following
accounts; Galoob Toys, Cap Toys, CBS Toys and Ideal Toys. Ms. Weltman was
awarded an EFFIE from the American Marketing Association for her work on the
Micro Machines brand and is a member of the Board of Directors of Women In Toys.

WILLIAM A. JOHNSON, JR., CHIEF FINANCIAL OFFICER AND TREASURER. Mr. Johnson
has served as Chief Financial Officer and Treasurer of the Company since March
1997. In this capacity, Mr. Johnson is the senior executive in charge of the
Company's finance, treasury, accounts receivable, customer service department,
as well as all MIS functions. From July 1987 to January 1997, Mr. Johnson was
employed by Noodle Kidoodle, Inc., ("Noodle Kidoodle") and from May 1989, served
as Vice President, Chief Financial Officer and Secretary. Noodle Kidoodle is a
NASDAQ traded company currently operating a retail toy business specializing in
educationally oriented products. Under its former name, Greenman Bros. Inc., the
company operated as many as 330 retail specialty toy stores and was the largest
distributor of toy, houseware and stationery products to retailers in the United
States. Mr. Johnson was responsible for all corporate financial functions and
administration including Securities and Exchange Commission and shareholder
relations matters. From January 1976 to April 1982, and then again from January
1987 to July 1987, Mr. Johnson was employed by Deloitte & Touche, serving in
various capacities, most recently as Audit Manager and Consultant. From July
1982 to January 1987, Mr. Johnson was employed by Associated Dry Goods (ADG) as
Divisional Vice President of Corporate Accounting. ADG was a $5 billion retail
holding company that owned Lord & Taylor, Caldor, Loehmann's and other
department store operations. ADG was purchased by May Department Stores in late
1996.

SANFORD B. FRANK, GENERAL COUNSEL AND SECRETARY. Mr. Frank has served as
General Counsel for the Company since April 1994 and as Secretary since
September 1995. In this capacity, Mr. Frank reports directly to Mr. Lebensfeld
and is responsible for overseeing all legal affairs of the Company. Prior to
joining Toymax, Mr. Frank served as Vice President and General Counsel for Tyco
Playtime, a division of Tyco, from September 1990 to December 1993. From 1980 to
1990, Mr. Frank was in private practice.

JONATHAN MUIR, CONTROLLER. Mr. Muir has served as controller of Toymax Inc.
since July 1995. In this capacity, Mr. Muir is responsible for the day-to-day
operations of the Finance Department including the preparation of financial
statements, budgets and forecasts, accounting, accounts payable and accounts
receivables. Mr. Muir joined Toymax in September 1993 as Assistant Controller.
Prior to his association with Toymax, Mr. Muir served as Controller of
Balducci's Inc. from 1989 to 1993.

OREN ASHER, DIRECTOR. Mr. Asher has been the Chairman of MGI Software Corp.
("MGI"), a leading developer of photo and video software, since January 2, 1996.
Prior to joining MGI, Mr. Asher was President and CEO of Ditek Software Corp., a
graphics software development company which he founded in 1985 and which
specializes in computer-aided design and drafting (CADD). Mr. Asher continues to
hold the office of Chairman with Ditek Software Corp.

52
<PAGE>
JOEL M. HANDEL, DIRECTOR. Mr. Handel has been a partner in the law firm of
Baer Marks & Upham LLP, which serves as counsel to the Company, since 1968. From
April 1987 through March 1997, Mr. Handel was a member of the Board of Directors
of Tyco Toys, Inc., a company for which Baer Marks & Upham LLP also served as
counsel.

The Board of Directors currently consists of three members. Prior to the
closing of the Offering, Messrs. Asher and Handel will be appointed to the Board
of Directors. Neither of Mr. Asher nor Mr. Handel is an officer or employee of
the Company or any of its affiliates. Following the completion of the Offering,
the Company intends to appoint two additional independent directors to the Board
of Directors, each of whom shall be satisfactory to the Company and Fahnestock.

The Company's Board of Directors will be divided into three classes.
Directors of each class will be elected at the annual meeting of stockholders
held in the year in which the term for such class expires and will serve
thereafter for three years. Having a classified Board of Directors may be viewed
as inhibiting a change of control in the Company and impeding an attempt to take
over the Company. See "Description of Securities--Delaware Law and Certain
Charter and By-law Provisions."

COMPENSATION AND COMMITTEES OF THE BOARD OF DIRECTORS

Directors of the Company who are not officers or full-time employees of the
Company will each receive annual compensation of $12,000 and each will be
granted options to purchase up to 15,000 shares of Common Stock under the Stock
Option Plan.

The Board of Directors has established an Audit Committee and a Compensation
Committee. The functions of the Audit Committee are to recommend annually to the
Board of Directors the appointment of the independent auditors of the Company,
review the scope of their annual audit and other services they are asked to
perform, review the report on the Company's financial statements following the
audit, review the accounting and financial policies of the Company, review
management's procedures and policies with respect to the Company's internal
accounting controls and review related party transactions. Effective upon the
closing of the Offering, the members of the Audit Committee will be Messrs. Chu,
Asher and Handel. The two additional independent directors who will be appointed
to the Board of Directors following completion of the Offering will also become
members of the Audit Committee.

The functions of the Compensation Committee are to set compensation levels
and employee benefits of all officers of the Company. The Compensation Committee
administers and makes awards under the Stock Option Plan. Effective upon the
closing of the Offering, the members of the Compensation Committee will be
Messrs. Chu, Asher and Handel.

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to the Company during the fiscal year ended March
31, 1997 by the Chief Executive Officer and the Company's four other most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 during any such year.

53
<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-----------------

<S> <C> <C> <C> <C> <C>
OTHER
ANNUAL ALL OTHER
FISCAL SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- ------------------------------------------------------ ------ --------- --- ----------- ---------

David Ki Kwan Chu, Chairman (1)....................... 1997 $ 0 0 $240,000 $ 0

Steven A. Lebensfeld, President....................... 1997 $ 253,500(2) -- 6,000(3) 867

Harvey Goldberg, Executive Vice President............. 1997 $ 240,300(2)(4) -- 6,000(3) 544

Kenneth Price, Senior Vice President.................. 1997 $ 265,000 -- 6,500(3) 399

Carmine Russo, Chief Operating Officer................ 1997 $ 160,000(2) -- 6,000(3) 268
</TABLE>

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

(1) Mr. Chu received no salary from the Company but did receive directors fees
of $240,000.

(2) Commencing April 1, 1997, the salaries of Mr. Lebensfeld, Mr. Goldberg and
Mr. Russo were increased to $300,000, $300,000 and $185,000, respectively.

(3) Constitutes car allowances.

(4) Mr. Goldberg's salary in fiscal 1997 included $157,000 in directors fees
from Toymax HK.

EMPLOYMENT AGREEMENTS

Prior to the closing of the Offering, the Company intends to enter into
separate employment agreements effective October 1, 1997 with Messrs.
Lebensfeld, Goldberg, Russo, Price, Johnson and Stein (individually and
collectively, the "Employment Agreements"). The Employment Agreements with
Messrs. Lebensfeld and Goldberg each have a term of three years with annual
automatic one-year extensions unless six months advance notice of nonextension
is furnished by either party. The Employment Agreements with Messrs. Russo,
Price and Stein each has a term of three years with one-year automatic
extensions unless two months advance notice of nonextension is furnished by
either party. The Employment Agreement with Mr. Johnson has a term of two years.

Pursuant to the Employment Agreements, Messrs. Lebensfeld, Goldberg, Price,
Russo, Johnson and Stein will receive base salaries of $315,000, $315,000,
$278,250, $265,000, $155,000, and $185,000, respectively, and are entitled to
participate in the Executive Bonus Plan and the Stock Option Plan. Messrs.
Lebensfeld's and Goldberg's Employment Agreements provide for a 10% (or greater,
as determined by the Board of Directors of the Company) increase in base salary
effective January 1, 1999 and each subsequent January 1 of the term thereof. The
Employment Agreements with Messrs. Russo, Price and Stein provide for a 5% (or
greater, as determined by the Board of Directors of the Company) increase in
base salary effective January 1, 1999 and each subsequent January 1 of the term
thereof.

Each of the Employment Agreements with Messrs. Lebensfeld and Goldberg also
provide an annual "Stock Appreciation Bonus" of 1% of the appreciation of the
value of the outstanding common stock of the Company during the immediately
preceding year.

Under the Employment Agreements, the Company may terminate each executive
officer's employment upon notice to the executive officer. Each executive
officer may resign and terminate the Employment Agreement at any time. If the
executive officer's employment is terminated at death, or by resignation or for
"Good Cause" (as defined in the applicable Employment Agreement) the Company has
no obligation to the executive except for payment of compensation and benefits
accrued but unpaid at the time of termination.

In the cases of Messrs. Lebensfeld and Goldberg, if during the term of the
applicable Employment Agreement, the Company terminates the executive officer's
employment without "Good Cause" or if the

54
<PAGE>

executive officer resigns with "Good Reason" (as defined in the applicable
Employment Agreement), in addition to accrued but unpaid compensation and
benefits, the executive officer is entitled to the payment of his base salary
and continued participation in the Executive Bonus Plan, payment of the Stock
Appreciation Bonus, and medical, health, dental and life insurance coverage for
the remaining term of the applicable Employment Agreement. In the cases of
Messrs. Russo, Price, Johnson and Stein, if during the term of the applicable
Employment Agreement, the Company terminates the executive officer's employment
without "Good Cause," in addition to accrued but unpaid compensation and
benefits, the executive officer is entitled to the payment of his base salary
for twelve months (six months in the case of Mr. Johnson) following termination
of employment.

All of the Employment Agreements provide for enhanced compensation in the
event of termination of employment in the context of a "Change of Control" of
the Company, as defined in the applicable Employment Agreement. Under each of
these Employment Agreements, a Change of Control includes (i) the acquisition by
a person or group of 20% or more of the Company's voting stock, (ii) a merger or
consolidation resulting in a change in ownership of at least 80% of the
Company's voting stock, and (iii) the sale of substantially all of the Company's
assets. Under the Employment Agreements with Messrs. Lebensfeld and Goldberg, in
addition to the events described above, a Change of Control also includes (a)
the Company or its shareholders entering into an agreement to perform a
transaction described above, if such transaction is ultimately consummated, and
(b) circumstances under which individuals who, as of the date the Employment
Agreements are adopted constitute the Board of Directors of the Company, cease
for any reason to constitute at least a majority thereof, unless the election of
each new director was approved by a majority of the directors then still in
office who were directors as of the date the Employment Agreements were adopted.
The Employment Agreements with Messrs. Russo, Price and Stein provide that, in
the event that following a Change of Control (as defined in his Employment
Agreement), the executive officer's employment is terminated without Good Cause,
in lieu of the twelve months' continuation of base salary otherwise due the
executive officer on account of termination without Good Cause, the executive
officer is entitled to 24 months' continuation of base salary. Mr. Johnson's
Employment Agreement provides that in the event he is terminated without Good
Cause following a Change of Control (as defined in his Employment Agreement), he
is entitled to a total of twelve months' continuation of base salary, rather
than six months'.

The Employment Agreements with Messrs. Lebensfeld and Goldberg provide that
in the event that the executive officer resigns within six months following a
Change of Control (as defined in the applicable Employment Agreement), or
following a Change of Control, the executive officer's employment is terminated
without Good Cause, then in lieu of the continuation of base salary due the
executive officer (but in addition to all other compensation and benefits due in
the event of termination for Good Reason or without Good Cause), the executive
officer is entitled to (1) a lump sum cash payment equal to three times his
average compensation (i.e., base salary, Stock Appreciation Bonuses and
Executive Bonus Plan awards) for the two prior calendar years, and (2) an amount
equal to any additional income and excise taxes that will be payable by the
executive officer on account of "excess parachute payments" (within the meaning
of Section 280G of the Internal Revenue Code).

1997 STOCK OPTION PLAN

Prior to the closing of the Offering, it is expected that the Board of
Directors will have adopted and the stockholders of the Company will have
approved the Stock Option Plan. The Stock Option Plan will provide for the grant
to qualified employees (including officers and directors) of the Company of
options to purchase shares of Common Stock. A total of 750,000 shares of Common
Stock will be reserved by the Company for issuance upon exercise of stock
options granted or which may be granted under the Stock Option Plan.

The Stock Option Plan will be administered by the Compensation Committee of
the Board of Directors. The Compensation Committee has complete discretion to
select the optionee and to establish the terms and conditions of each option,
subject to the provisions of the Plan. Options granted under the Stock Option
Plan may or may not be "incentive stock options" as defined in Section 422 of
the Code ("Incentive Options") depending upon the terms established by the Board
or Committee at the time of

55
<PAGE>
grant, but the exercise price of Incentive Options granted may not be less than
100% of the fair market value of the Common Stock as of the date of the grant
(110% of the fair market value if the grant is an Incentive Option to an
employee who owns more than 10% of the outstanding voting power of the Company).
Options may not be exercised more than 10 years after the grant (five years if
the grant is an Incentive Option to any employee who owns more than 10% of the
outstanding voting power of the Company). Options granted under the Stock Option
Plan are not transferable and may be exercised only by the respective grantees
during their lifetime or by their heirs, executors or administrators in the
event of death. Under the Stock Option Plan, shares subject to cancelled or
terminated options will be reserved for subsequently granted options. The number
of options outstanding and the exercise price thereof will be subject to
adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends.

Prior to the closing of the Offering, the Company intends to grant options
to purchase an aggregate of 414,000 shares of Common Stock under the Stock
Option Plan to officers, directors and other employees of the Company. Messrs
Chu, Lebensfeld, Goldberg, Price, Russo, Stein and Johnson will receive options
to purchase 60,000, 60,000, 60,000, 46,000, 46,000, 28,000 and 28,000 shares of
Common Stock, respectively. In addition, Directors of the Company who are not
officers or full-time employees (Messrs. Asher and Handel) will each receive
options to purchase 15,000 shares of Common Stock. Options granted to executive
officers will vest 20% per year over a five year period commencing on the date
of the grant. Options granted to Messrs. Asher and Handel will vest 50% per year
over a two year period commencing on the date of the grant.

EXECUTIVE BONUS PLAN

Prior to the closing of the Offering, it is expected that the Board of
Directors will have adopted, and the shareholders will have approved, the Toymax
International, Inc. Executive Bonus Plan (the "Bonus Plan"). The primary purpose
of the Bonus Plan is to enable the Company to attract, motivate and retain key
management employees upon whose judgment, initiative and efforts the Company's
successful conduct, development and growth depend.

The Bonus Plan will be administered by the Compensation Committee of the
Board of Directors (the "Compensation Committee"). The Compensation Committee
will determine whether to maintain the Bonus Plan with respect to any fiscal
year of the Company, the key management employees of the Company who will be
eligible to participate in the Bonus Plan for such fiscal year, and the amount,
if any, of each participant's award under the Bonus Plan for such fiscal year,
based on such participant's performance during such year. The aggregate amount
of awards made under the Bonus Plan for a fiscal year may not exceed an amount
equal to (i) 15% percent of the profit of the Company and its designated
affiliates for such year (determined before taxation and Bonus Plan awards),
reduced by (ii) 15% of the shareholders' equity of the Company and such
affiliates during such year, all as determined by the Compensation Committee
(the "Bonus Pool"). In addition, no award under the Bonus Plan may exceed the
lesser of (i) 75% of the participant's base salary for the fiscal year for which
the award is being made, or (ii) the participant's target percentage of the
Bonus Pool for such fiscal year.

Any awards under the Bonus Plan are paid, in cash, during the first pay
period in June following the close of the fiscal year of the Company for which
the Bonus Plan is maintained. Unless otherwise agreed in a writing between the
Company and the participant, awards may be paid only to a participant who was an
employee in good standing on the last day of such fiscal year, or, at the
discretion of the Compensation Committee, who terminated employment prior to
such date due to death, permanent and total disability or retirement after age
65.

56
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth, as of the date of this Prospectus and as
adjusted to reflect the sale of 2,700,000 shares of Common Stock offered by the
Company hereby, certain information, with respect to the beneficial ownership of
Common Stock by (i) each person known by the Company to be the owner of more
than 5% of the outstanding Common Stock, (ii) each director, (ii) each executive
officer named in the Summary Compensation Table and (iv) all directors and
executive officers as a group:

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
OWNED
------------------------

<S> <C> <C> <C>
AMOUNT AND NATURE OF
BENEFICIAL BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1)(2) OFFERING OFFERING
- ----------------------------------------------------------------------- -------------------- ----------- -----------

David Ki Kwan Chu(3)(6)................................................ 4,330,083 57.7% 42.5%

Steven Lebensfeld(4)(8)................................................ 1,312,500 17.5 12.9

Harvey Goldberg(4)(5).................................................. 70,667 0.9 0.7

Goldberg Family Trust(7)............................................... 1,241,833 16.6 12.2

Frances Shuk Kuen Leung (3)(6)......................................... 4,330,083 57.7 42.5

Kenneth Price.......................................................... 225,000 3.0 2.2

Carmine Russo.......................................................... 18,750 0.3 0.2

All directors and executive officers as a group (8 persons)............ 5,962,000 79.5% 58.5%
</TABLE>

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

(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares
beneficially owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
hereof upon the exercise of warrants or options. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants that
are held by such person (but not those held by any other person) are
exercisable within 60 days from the date hereof have been exercised.

(2) The equity accounts of the Company have been retroactively adjusted to
reflect a recapitalization to effect a stock split of 16.67 shares of Common
Stock, par value $0.01, for one share of Common Stock, par value $0.01.

(3) Mr. Chu's and Ms. Leung's address is: Units A and B, CDW Building, 382-392
Castle Peak Road, Tsuen Wan, N.T., Hong Kong.

(4) Messrs. Lebensfeld, Goldberg, Price and Russo's address is: 125 East
Bethpage Road, Plainview, New York 11803.

(5) A total of 1,241,833 shares of Common Stock are beneficially owned by a
trust for the benefit of Mr. Goldberg's wife and children. The trustee of
this trust is not affiliated with Mr. Goldberg and Mr. Goldberg disclaims
beneficial ownership of such shares.

(6) Includes 4,330,083 shares of Common Stock held by Best Phase Limited, a
British Virgin Islands corporation, of which Mr. Chu and Ms. Leung own 100%
of the outstanding shares. The address of Best Phase Limited is Units A and
B, CDW Building, 382-392 Castle Peak Road, Tsuen Wan, N.T., Hong Kong.
Frances Shuk Kuen Leung is the wife of Mr. Chu and they are deemed to be the
beneficial owners of each other's shares of Common Stock of the Company.

(7) The Goldberg Family Trust's address is: c/o CIBC West Indies Offshore
Banking Corporation, as trustee, International Centre, Warrens, St. Michael,
P.O. Box 405, Bridgetown, Barbados, West Indies.

57
<PAGE>

(8) Includes 126,000 shares held in trust or custodian accounts for the benefit
of Mr. Lebensfeld's children. Mr. Lebensfeld is not the trustee of such
trust and disclaims beneficial ownership of the 120,000 shares held in
trust.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PURCHASING AND MANUFACTURING

Tai Nam Industrial Company Limited ("Tai Nam"), which is based in Hong Kong,
serves as the Company's purchasing agent pursuant to an Agency Agreement dated
April 1, 1997, as amended (the "Agency Agreement") between Tai Nam and Toymax
Inc. Since the Company's founding, Tai Nam and its affiliate, Concentric, have
served as the Company's purchasing agent. Tai Nam and Concentric are owned by
David Chu, the Chairman and a principal stockholder of the Company. As the
Company's purchasing agent, Tai Nam arranges for the manufacturing of the
Company's products based on purchase orders placed with Tai Nam by the Company.
In addition, Tai Nam handles all shipping documents, letters of credit, bills
and payments, serves as liaison with other vendors and performs quality control
functions.

Pursuant to the Agency Agreement, Tai Nam receives an agency fee equal to
seven percent (7%) of the gross invoiced value of products purchased by Toymax
Inc. (based on the factory purchase price of the merchandise). Until April 1997,
the Company utilized Concentric as its purchasing agent on similar terms. In
fiscal 1997, the Company paid Concentric $1,420,768 in agency fees and in the
three months ended June 30, 1997 paid Tai Nam $488,124 in agency fees. Tai Nam's
duties include handling purchase orders for, and acting as liaison to,
manufacturers and vendors for the Company. Pursuant to the Agency Agreement,
Toymax purchases products at FOB Yien Tian prices. The Company pays all expenses
associated with the making of molds for new products and such molds are assets
of the Company. The term of the Agency Agreement ends on March 31, 1999. The
terms granted to the Company and the historical willingness of Tai Nam to permit
the Company to delay payments at certain times, has benefited the Company.

In fiscal 1997, the Company's purchases from Tai Nam and Concentric totalled
$13.5 million and $20.6 million, respectively. The majority of the Company's
products are manufactured by Jauntiway, which is also owned by Mr. Chu. In
fiscal 1997, approximately 85% of the Company's products were manufactured by
Jauntiway (some using subcontractors) and such production constituted
approximately 85% of Jauntiway's overall production.

In April 1997, Toymax NY entered into an Agency Agreement with Tai Nam under
which Toymax NY acts as Purchasing Agent for Tai Nam in the United States in
exchange for a fee equal to 5% of such purchases. During the quarter ending June
30, 1997 such fees amounted to $20,207.

The Company rents approximately 1,628 square feet of space in Kowloon, Hong
Kong from David Chu, Chairman of the Company which it uses as showroom
facilities. The monthly rent under this lease is $5,900 (HK $45,584). The lease
expires on August 1, 1998.

The Company, Tai Nam and Mr. Chu have agreed that following completion of
the Offering, all transactions with affiliates, including Tai Nam and Jauntiway,
will be subject to the approval of the independent directors of the Company's
Board of Directors.

A portion of the proceeds of the Offering (approximately $6.0 million) will
be used to pay down trade payables owed to Tai Nam and Concentric and to shorten
payment cycles to Tai Nam. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

GUARANTEES AND LOANS

Toymax NY, Toymax HK, and Tai Nam maintain a line of credit facility with
State Street Bank & Trust Company, Hong Kong Branch (the "State Street Credit
Facility"). The State Street Credit Facility is subdivided into three
sub-facilities: (i) a $25.0 million Factoring-Cum-Financing Facility for Toymax
NY ("Factoring Facility"), (ii) a $5.0 million Inventory Financing Facility for
Toymax NY ("Inventory Facility")

58
<PAGE>
and (iii) a $1.0 million Trade Facility for Toymax HK and its affiliate Tai Nam
("Trade Facility"). At March 31, 1997 the Company's outstanding balance under
the State Street Credit Facility was $8.4 million. In June 1997, the maximum
borrowing limit under the State Street Credit Facility was increased from $12.5
million to $26.0 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

The Inventory Facility and the Factoring Facility are each guaranteed,
personally and severally by
David Chu, Steven Lebensfeld and Harvey Goldberg and by Tai Nam, Tai Nam
Industrial Co., Juantiway, Concentric and Toymax HK. Mr. Chu is the Chairman and
a principal stockholder of the Company. Messrs. Lebensfeld and Goldberg are
executive officers of the Company. David Chu is the owner of Tai Nam, Tai Nam
Industrial Co., Jauntiway and Concentric. Following the closing of the Offering,
the Company expects that each of these guarantees will be terminated.

Toymax HK is the guarantor of Tai Nam's obligations under a $4.68 million
credit facility in Hong Kong.

As of June 30, 1997, Mr. Lebensfeld, the Company's President, was indebted
to the Company in the amount of $198,080. The maximum balance of the
indebtedness of Mr. Lebensfeld to the Company since the beginning of fiscal 1997
was $216,910. These amounts represented expense and salary advances and do not
bear interest. Mr. Lebensfeld intends to repay all such outstanding advances.

59
<PAGE>
DESCRIPTION OF SECURITIES

COMMON STOCK

The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $.01 per share, of which, as of the date of this Prospectus, 7,500,000
shares are outstanding. Holders of shares of Common Stock are entitled to one
vote for each share hold of record on all matters to be voted on by
stockholders. There are no preemptive, subscription, conversion or redemption
rights pertaining to the shares of Common Stock. Holders of shares of Common
Stock are entitled to receive dividends when, as and if declared by the Board of
Directors from funds legally available therefore and to share ratably in the
assets of the Company available upon liquidation, dissolution or winding up. The
holders of shares of Common Stock do not have cumulative voting rights for the
election of directors and, accordingly, the holders of more than 50% of the
shares of Common Stock are able to elect all directors. See "Risk Factors --
Control by Existing Stockholders." All of the outstanding shares of Common Stock
are, and the Common Stock offered hereby, upon issuance and when paid for, will
be, duly authorized, validly issued, fully paid and non-assessable.

PREFERRED STOCK

The Company is authorized to issue up to 5,000,000 shares of preferred
stock, par value $.01 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined by the Board of Directors at
the time of issuance without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. The issuance of any such preferred stock could
materially adversely affect the rights of holders of Common Stock and,
therefore, could reduce the value of the Common Stock. The ability of the Board
of Directions to issue preferred stock could have the effect of delaying
deferring or preventing a change in control of the Company. See "Risk Factors --
Certain Anti-Takeover Provisions."

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

Certain provisions of the Delaware General Corporation Law and of the
Amended and Restated Certificate of Incorporation and By-Laws, summarized in the
following paragraphs, may be considered to have an anti-takeover effect and may
delay, deter or prevent a tender offer, proxy contest or other takeover attempt
that a stockholder might consider to be in such stockholder's best interest,
including such an attempt as might result in payment of a premium over the
market price for shares held by stockholders. See "Risk Factors -- Certain
Anti-Takeover Provisions."

DELAWARE ANTI-TAKEOVER LAW. Section 203 of the Delaware General Corporation
Law prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested stockholder
unless (i) prior to the date of the business combination, the transaction is
approved by the board of directors of the corporation, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock. The
restrictions of Section 203 do not apply, among other things, if a corporation,
by action of its stockholders, adopts an amendment to its certificate of
incorporation or by-laws expressly electing not to be governed by Section 203,
provided that, in addition to any other vote required by law, such amendment to
the certificate of incorporation or by-laws must be approved by the

60
<PAGE>
affirmative vote of a majority of the shares entitled to vote. Moreover, an
amendment so adopted is not effective until twelve months after its adoption and
does not apply to any business combination between the corporation and any
person who became an interested stockholder of such corporation on or prior to
such adoption. The Company's Certificate of Incorporation and By-laws do not
currently contain any provisions electing not to be governed by Section 203 of
the Delaware General Corporation Law. The provisions of Section 203 of the
Delaware General Corporation Law may have a depressive effect on the market
price of the Common Stock because they could impede any merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of the Company.

CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors is divided
into three classes of directors serving staggered terms. One class of directors
will be elected at each annual meeting of stockholders for a three-year term.
Having a classified Board of Directors may be viewed as inhibiting a change of
control in the Company and impending an attempt to take over the Company. See
"Management -- Board of Directors."

PREFERRED STOCK. The Company is authorized to issue 5,000,000 shares of
undesignated Preferred Stock. Under certain circumstances, the issuance of
Preferred Stock could be utilized as a method of discouraging, delaying or
preventing a change in control of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is the American Stock
Transfer & Trust Company, New York, New York.

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering there will be 10,200,000 Shares
outstanding, of which 7,500,000 shares will be "restricted securities," as such
term is defined under Rule 144 under the Securities Act and may not be sold in
the absence of registration under the Securities Act or an applicable exemption,
including the exemption contained in Rule 144. Under Rule 144, as amended, a
person (or persons, whose shares are aggregated) who has beneficially owned
shares of Common Stock for at least one year may, under certain circumstances,
sell, within any three-month period, a number of shares of Common Stock that
does not exceed the greater of (i) 1% of the number of the then outstanding
shares or (ii) the average weekly trading volume of such shares during the four
calendar weeks preceding such sale. In addition, a person who is not deemed to
have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned the restricted securities for
the last two years is entitled to sell all such shares without regard to the
volume limitations, current public information requirements, manner of sale
provisions and notice requirements of Rule 144. No predictions can be made as to
the effect, if any, that market sales of restricted shares of Common Stock or
their eligibility for sale under Rule 144 will have on the market price of the
Common Shares prevailing from time to time. Nevertheless, sales of substantial
amounts of the restricted shares of Common Stock on the public market could
adversely affect such market price and could impair the Company's future ability
to raise capital through the sale of equity securities. Any shares of Common
Stock to be sold through Rule 144 or otherwise by the holders of shares of
Common Stock issued and outstanding at the Effective Date shall be executed
through the Representatives at market prices.

The stockholders of the Company have agreed not to offer, sell, contract to
sell, assign, transfer or otherwise dispose of, directly or indirectly, any of
the shares of Common Stock held by them without the Representatives' prior
written consent for a period of nine (9) months from the Effective Date.

The holders of the Representatives' Warrants have been granted certain
registration rights with respect to the Representatives' Warrants and the
195,750 Shares issuable upon exercise of the warrants included in the
Representatives' Warrants. The sale, or availability for sale, of the
outstanding shares of

61
<PAGE>
Common Stock underlying the Representatives' Warrants in the public market
subsequent to the Offering could adversely affect the prevailing market price of
the shares of Common Stock.

CERTAIN FEDERAL TAX CONSEQUENCES

The following discussion summarizes certain material federal income tax
consequences expected to apply to a holder with respect to the purchase,
ownership and disposition of shares of Common Stock ("Shares"). This discussion
is based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), final, temporary and proposed United States Treasury regulations
promulgated thereunder, and the administrative and judicial interpretations
thereof, all as in effect as of the date of this Prospectus. The consequences to
any particular holder may differ from those described below by reason of that
holder's particular circumstances. This summary does not address the
considerations that may be applicable to particular classes of holders,
including financial institutions, broker-dealers, tax-exempt organizations,
banks, insurance companies and persons who are not citizens or residents of the
United States, or who, as to the United States, are foreign corporations,
foreign partnerships or foreign estates or trusts. In addition, this summary is
limited to persons that will hold Shares as "capital assets" within the meaning
of Section 1221 of the Code.

The following discussion does not constitute, and should not be considered
as, legal or tax advice to prospective holders. Each potential holder should
consult with its own tax adviser before determining whether to purchase Shares,
including the effects of applicable state, local, foreign or other tax laws and
possible changes in the tax laws including, but not limited to, changes
contained in the Taxpayer Relief Act of 1997.

DIVIDENDS

Dividends paid on the Shares will be taxable as ordinary income to the
extent paid out of the Company's current or accumulated earnings and profits (as
defined for United States federal income tax purposes). Dividends received by
corporations out of such earnings and profits will generally qualify for the 70
percent dividends-received deduction, so long as the holder has held its Shares
for a sufficient time and certain other conditions are met. A stockholder will
not be entitled to claim the dividends received deduction if he holds the shares
for 45 days or less during the 90-day period beginning on the date which is 45
days before the date on which such shares become ex-dividend with respect to
such dividend, or to the extent the stockholder is under an obligation to make
related payments with respect to positions in substantially similar or related
property. The 70 percent dividends-received deduction may be reduced for holders
who borrow funds directly attributable to the purchase of its Shares. Where the
dividends-received deduction is available, a portion of the amount deducted may
have to be included by a corporation in computing its possible liability for
alternative minimum tax. The amount of any distribution in excess of the
Company's current and accumulated earnings and profits will first be applied to
reduce the holder's tax basis in the Shares, and any amount in excess of tax
basis will be treated as gain from the sale or exchange of the Shares.

DISPOSITIONS OF SHARES

Subject to the discussion below relating to the potential application of
Code Section 1248, a U.S. stockholder will, upon the sale or exchange of any
Shares, recognize a gain or loss for federal income tax purposes equal to the
difference between the amount realized upon such sale or exchange and the
stockholder's basis in the Shares. If the stockholder's holding period for such
Shares is more than 18 months, such gain will be taxed as long-term capital gain
and generally will be taxed at the rate of 20%. If the stockholder's holding
period is more than one year but not more than 18 months, such gain would
generally be subject to tax at a 28% rate. In addition, for tax years beginning
after December 31, 2000, the maximum capital gain rates for assets which are
held for more than 5 years is 18%. However, this 18% rate only applies to assets
for which the holding period begins after December 31, 2000. A taxpayer holding
a

62
<PAGE>
capital asset on January 1, 2001 may elect to treat the asset as having been
sold on such date for its fair market value, and will be required to recognize
gain, if any, measured by the fair market value of the shares on such date over
the taxpayer's basis in such asset. A taxpayer who makes such election will be
deemed to have reacquired the asset on such date.

Code Section 1248 provides that if a U.S. person disposes of stock in a
foreign corporation and such person owned directly, indirectly or constructively
10% or more of the voting shares of the corporation at any time during the
five-year period ending on the date of disposition when the corporation was a
"controlled foreign corporation" ("CFC"), any gain from the sale or exchange of
the shares may be treated as ordinary income to the extent of the CFC's earnings
and profits during the period that the stockholder held the shares (with certain
adjustments). Holders who acquire Shares in this Offering will own stock in a
U.S. corporation. However, certain subsidiaries of the Company, such as the
Toymax HK and Toymax Bermuda subsidiaries will qualify as CFCs and will be
wholly-owned subsidiaries of the Company. Code Section 1248(e) provides that if
a United States person, who owns 10% or more of the stock of a U.S. corporation,
sells or exchanges stock of such U.S. corporation and such U.S. corporation was
formed or availed of principally for the holding, directly or indirectly, of
stock of one or more foreign corporations, then all or part of the United States
person's gain from the sale of the stock of the U.S. corporation could be
subject to Code Section 1248. The determination of whether such U.S. corporation
was formed principally for such purpose is a facts and circumstances analysis.
The Company believes that because of the Company's dispersion of the ownership
of Shares being offered in this Offering, no stockholder who acquires Shares in
this Offering will own 10% or more of the voting shares of the Company and
therefore Section 1248(e) should not apply to such stockholders. Even if such a
stockholder owns, directly or through attribution, 10% or more of the voting
shares of the Company, Code Section 1248(e) should not apply to such stockholder
since, in the Company's view, it was not formed nor will be availed of
principally for the holding, directly or indirectly, of stock of its foreign
subsidiaries. However, U.S. persons who might, directly or through attribution,
acquire 10% or more of the voting Shares of the Company should consider the
possible application of Code Section 1248(e). In all events, a corporate
stockholder is not currently subject to Code Section 1248(e) because the federal
income tax rate at which capital gain and ordinary income are taxed is the same.

BACKUP WITHHOLDING

Certain noncorporate holders may be subject to backup withholding at a rate
of 31 percent on dividends. Generally, backup withholding applies only when the
taxpayer fails to furnish or certify a proper Taxpayer Identification Number or
when the taxpayer is notified by the IRS that the taxpayer has failed to report
payments of interest and dividends properly. Holders should consult their tax
advisers regarding their qualification for exemption for backup withholding and
the procedure for obtaining any applicable exemption.

63
<PAGE>
UNDERWRITING

The underwriters named below (the "Underwriters"), for whom Fahnestock & Co.
Inc. ("Fahnestock") and Wedbush Morgan Securities Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus.

<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER OF SHARES PURCHASED
- -------------------------------------------------------------------------------------- ---------------------------
<S> <C>
Fahnestock & Co. Inc..................................................................
Wedbush Morgan Securities Inc. .......................................................
TOTAL.............................................................................
-------
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions and that the Underwriters are committed to
purchase all of the shares (other than those covered by the over-allotment) if
any are purchased. The Underwriting Agreement provides that the Company will
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.

The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock to the public at the public offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less a
concession not to exceed $ per share. The Underwriters may allow, and such
dealers may reallow, a concession of not more than $ to certain other
dealers. After the public offering, the offering price, the concession to
certain dealers and other selling terms may be changed by the Representatives.
The Underwriters have agreed not to confirm sales of Common Stock offered hereby
to any account over which they exercise discretionary authority without the
prior written approval of the customer.

The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to a maximum of
405,000 additional shares of Common Stock solely to cover over-allotments, if
any, at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. To the extent that the Underwriters
exercise this option, each Underwriter will be committed, subject to certain
conditions, to purchase approximately the same proportion of additional shares
as the number of shares to be purchased by it shown in the foregoing table bears
to the total number of shares of Common Stock initially offered hereby.

The Company's directors, officers and beneficial owners of 5% or more of the
Company's outstanding Common Stock have agreed not to offer, issue, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company, other than the
over-allotment shares, if any, for a period of nine (9) months from the date of
this Prospectus, without the prior written consent of the Representatives.

The Company and Fahnestock will enter into an investment banking agreement
which, amongst other things, will grant Fahnestock a right of first refusal for
a period of fifteen (15) months after the Effective Date for any investment
banking services. In addition, Fahnestock shall have Board of Directors
information and obligation rights. The Company has also agreed to pay Fahnestock
a non-accountable expense allowance of $75,000, $40,000 of which has been paid
to date.

In connection with this Offering, the Company has agreed to grant to the
Representatives warrants to purchase up to 195,750 shares of Common Stock (the
"Representatives' Warrants"). The Representatives' Warrants, which warrants (and
the underlying shares of Common Stock) are being registered pursuant to the
Registration Statement filed with respect to the Common Stock offered hereby,
shall be exercisable at any time during a period of four (4) years commencing at
the beginning of the second year after their

64
<PAGE>
issuance and provide for an exercise price equaling one hundred twenty percent
(120%) of the initial public offering price set forth herein. The
Representatives' Warrants are non-transferable during the term, except to
affiliates of the Representatives, and grant to the holder thereof certain
registration rights for the securities issuable upon the exercise thereof.

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiations between the Company and the Representatives and does not
necessarily bear any relationship to the Company's assets, book value, revenues
or other established criteria of value. The initial public offering price should
not be considered indicative of the actual value of the Company. Among the
factors considered in such negotiations were the history and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management, the Company's capital structure, past and present
operations and earnings and earnings prospects, the general condition of the
securities markets at the time of the Offering and the market prices and
earnings of similar securities of comparable companies at the time of the
Offering.

In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 405,000 shares of Common Stock, by
exercising the over-allotment option referred to above. In addition, the
Representatives may impose "penalty bids" under contractual arrangements with
the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.

LEGAL MATTERS

Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company by Baer Marks & Upham, LLP, New York, New York.
Joel M. Handel, a partner of Baer Marks & Upham, will become a Director of the
Company prior to the consummation of the Offering. Each Director who is not an
officer or full-time employee of the Company, including Mr. Handel, will receive
annual compensation of $12,000 and will be granted options to purchase up to
15,000 shares of Common Stock. Orrick Herrington & Sutcliffe LLP, New York, New
York has acted as counsel to the Underwriters in connection with this Offering.

EXPERTS

The consolidated financial statements as of and for the years ended March
31, 1996 and March 31, 1997 included in this Prospectus have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the period set forth in their report appearing herein, and are included in
reliance upon the authority of said firm as experts in auditing and accounting.

The consolidated financial statements for the year ended March 31, 1995
included in this Prospectus have been audited by Deloitte Touche Tohmatsu,
independent auditors, as stated in their report appearing

65
<PAGE>
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in auditing and accounting.

AUDITOR CHANGE

On March 15, 1996, the Company engaged the services of BDO Seidman LLP
("BDO") as its new independent accountants effective with the audit of its
fiscal year ended March 31, 1996. The Company's prior independent accountants,
Deloitte Touche Tohmatsu were not re-elected by the Board of Directors for the
fiscal year ended March 31, 1996. Deloitte Touche Tohmatsu's reports on the
financial statements of the Company for each of the two years in the period
ended March 31, 1995 contain no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to change accountants was approved by the Board of
Directors of the Company. Prior to the change in accountants, including during
each of the Company's two fiscal years ended March 31, 1995 and the nine months
ended December 31, 1995, there were no reportable events (as defined in the
regulations of the Securities and Exchange Commission) or disagreements with the
former accountants on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") Washington, D.C., a Registration Statement on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference to such exhibit. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement and the Exhibits and schedules thereto, and may be
inspected without charge at the Commissions's principal office at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and copies of all or any
part thereof may be obtained from such office upon payment of fees prescribed by
the Commission. In addition, the Commission maintains a web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company. If the Company's Common Stock is listed on
the Nasdaq National Market after the Offering, such information may also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C.

66
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONTENTS
---------

<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2

INDEPENDENT AUDITORS' REPORT F-3

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated balance sheets as of March 31, 1996 and 1997; June 30, 1997
(unaudited) F-4

Consolidated statements of operations for the three years
in the period ended March 31, 1997; three months ended June 30, 1996 and
1997 (unaudited) F-5

Consolidated statements of stockholders' equity (deficit)
for the three years in the period ended March 31, 1997; three months ended
June 30, 1996 and 1997 (unaudited) F-6

Consolidated statements of cash flows for the three years
in the period ended March 31, 1997; three months ended June 30, 1996 and
1997 (unaudited) F-7

Notes to consolidated financial statements F-8--F-22
</TABLE>

F-1
<PAGE>
(THE FOLLOWING IS THE FORM OF OPINION WE WILL BE
IN A POSITION TO ISSUE UPON THE COMPLETION
OF THE EVENTS DESCRIBED IN NOTES 1 AND 12)

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders of
Toymax International, Inc.

We have audited the accompanying consolidated balance sheets of Toymax
International, Inc. and subsidiaries as of March 31 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the two year period ended March 31,
1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Toymax
International, Inc. and its subsidiaries at March 31, 1996 and 1997, and the
results of its operations and its cash flows for each of the years in the two
year period ended March 31, 1997, in conformity with generally accepted
accounting principles.

BDO Seidman, LLP
Mitchel Field, New York
July 31, 1997, except for Notes 1 and 12
which are as of , 1997

F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Toymax International, Inc.

We have audited the accompanying consolidated statement of operations,
stockholders' equity (deficit) and cash flows of Toymax International, Inc. and
subsidiaries for the year ended March 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 audit.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the result of operations and cash flows of Toymax
International, Inc. and its subsidiaries for the year ended March 31, 1995 in
conformity with generally accepted accounting principles.

Deloitte Touche Tohmatsu
Hong Kong
November 11, 1995, except for Note 1
as to which the date is
, 1997

The accompanying financial statements retroactively reflect the formation of
the Company and its combination with Toymax (H.K.) Limited and Toymax, Inc.
which is to be effected prior to the effective date of this Registration
Statement. The above opinion is in the form which will be signed by Deloitte
Touche Tohmatsu upon consummation of such formation and combination, which is
described in Note 1 of Notes to Consolidated Financial Statements, and assuming
that from November 11, 1995, to the date of the formation and combination, no
other events shall have occurred that would affect the accompanying financial
statements and notes thereto.

Deloitte Touche Tohmatsu
Hong Kong
October 14, 1997

F-3
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
---------------------------- -------------
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT:
Cash.............................................................. $ 1,269,434 $ 564,659 $ 1,550,782
Due from Factor (Notes 2 and 5)................................... 5,514,779 14,311,369 5,431,992
Accounts receivable, less allowance for doubtful accounts of
$811,969, $739,219 and $722,095 (Notes 2 and 5)................. 619,015 2,226,845 1,658,410
Prepaid expenses and other current assets......................... 1,276,770 795,869 1,715,076
Inventories (Notes 3 and 5)....................................... 5,835,805 4,797,452 8,037,018
Income tax refunds receivable (Note 7)............................ 4,199,999 -- 215,484
Due from affiliates (Note 6)...................................... 3,564 4,367 51,793
Due from officers (Note 6)........................................ 164,831 171,689 200,380
Deferred income taxes (Note 7).................................... -- 1,007,350 1,007,350
------------- ------------- -------------
TOTAL CURRENT ASSETS.......................................... 18,884,197 23,879,600 19,868,285
PROPERTY AND EQUIPMENT, NET (NOTE 4)................................ 3,023,213 2,190,861 2,228,260
DEFERRED INCOME TAXES (NOTE 7)...................................... -- 57,228 57,228
OTHER ASSETS........................................................ 219,278 150,153 382,158
------------- ------------- -------------
$ 22,126,688 $ 26,277,842 $ 22,535,931
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT:
Bank credit facility (Note 5)..................................... $ 4,012,795 $ 8,447,087 $ 5,103,708
Accounts payable.................................................. 4,736,921 1,648,405 3,417,385
Accrued expenses.................................................. 3,071,712 2,919,735 1,702,086
Accrued rebate and allowances..................................... 1,608,760 1,425,759 1,394,090
Income taxes payable.............................................. 733,421 275,145 249,728
Due to affiliates (Note 6)........................................ 10,728,495 10,756,471 10,101,262
Due to officer (Note 6)........................................... 48,466 504,032 397,420
Current portion of long-term obligations (Note 8)................. 66,846 37,714 48,285
------------- ------------- -------------
TOTAL CURRENT LIABILITIES..................................... 25,007,416 26,014,348 22,413,964
LONG-TERM OBLIGATIONS (NOTE 8)...................................... 51,836 8,300 49,041
DEFERRED INCOME TAXES (NOTE 7)...................................... 159,772 -- --
------------- ------------- -------------
TOTAL LIABILITIES............................................. 25,219,024 26,022,648 22,463,005
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, par value $.01 per share; 5,000,000 shares
authorized, none outstanding....................................
Common stock, par value $.01 per share; 50,000,000 shares
authorized;
7,500,000 shares issued and outstanding (Note 1)................ 57,692 57,692 57,692
Additional paid-in capital.......................................... -- -- 187,000
Retained earnings (accumulated deficit)............................. (3,134,876) 212,654 (156,614)
Cumulative foreign currency translation adjustment.................. (15,152) (15,152) (15,152)
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT).......................... (3,092,336) 255,194 72,926
------------- ------------- -------------
$ 22,126,688 $ 26,277,842 $ 22,535,931
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
------------------------------------------- ---------------------------
1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
NET SALES (NOTES 6 AND 9).................... $ 70,622,912 $ 43,621,599 $ 54,682,635 $ 2,678,914 $ 7,090,862
------------- ------------- ------------- ------------- ------------
COST AND EXPENSES:
Cost of goods sold (Notes 6 and 8)......... 42,639,900 30,600,599 33,836,513 2,366,696 3,783,717
Selling and administrative (Notes 4 and
8)....................................... 27,121,111 24,640,633 18,026,004 2,833,295 3,664,051
------------- ------------- ------------- ------------- ------------
69,761,011 55,241,232 51,862,517 5,199,991 7,447,768
------------- ------------- ------------- ------------- ------------
Operating income (loss).................. 861,901 (11,619,633) 2,820,118 (2,521,077) (356,906)
------------- ------------- ------------- ------------- ------------
OTHER INCOME (EXPENSES):
Other income, net.......................... 247,138 685,427 726,037 246,953 31,856
Interest income............................ 101,439 31,577 89,556 10,452 17,587
Interest expense........................... (561,148) (769,465) (483,380) (51,165) (148,810)
Finance charges (Note 2)................... (579,345) (385,721) (498,137) (25,404) (83,168)
------------- ------------- ------------- ------------- ------------
(791,916) (438,182) (165,924) 180,836 (182,535)
------------- ------------- ------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT AND
MINORITY INTEREST IN NET LOSS OF
SUBSIDIARY................................. 69,985 (12,057,815) 2,654,194 (2,340,241) (539,441)
INCOME TAX BENEFIT (NOTE 7).................. 198,175 2,253,732 681,200 922,097 152,187
------------- ------------- ------------- ------------- ------------
INCOME (LOSS) BEFORE MINORITY INTEREST IN NET
LOSS OF SUBSIDIARY......................... 268,160 (9,804,083) 3,335,394 (1,418,144) (387,254)
MINORITY INTEREST IN NET LOSS OF
SUBSIDIARY................................. -- -- 12,136 -- 17,986
------------- ------------- ------------- ------------- ------------
NET INCOME (LOSS)............................ $ 268,160 $ (9,804,083) $ 3,347,530 (1,418,144) (369,268)
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
EARNINGS (LOSS) PER SHARE (NOTE 1)........... $ .04 $ (1.31) $ .45 $ (0.19) $ (0.05)
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
SUPPLEMENTAL NET INCOME (LOSS) PER SHARE..... -- -- $ .47 -- $ (0.03)
------------- ------------
------------- ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK ADDITIONAL EARNINGS CUMULATIVE STOCKHOLDERS'
--------------------- PAID-IN (ACCUMULATED TRANSLATION EQUITY
THREE YEARS ENDED MARCH 31, 1997 SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT (DEFICIT)
- ----------------------------------- ---------- --------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1994............. 7,500,000 $ 57,692 $ -- $7,101,047 $ (15,152) $7,143,587
Net income....................... -- -- -- 268,160 -- 268,160
Dividend declared................ -- -- -- (700,000) -- (700,000)
---------- --------- ---------- ------------ ----------- ------------
BALANCE, March 31, 1995............ 7,500,000 57,692 -- 6,669,207 (15,152) 6,711,747
Net loss......................... -- -- -- (9,804,083) -- (9,804,083)
---------- --------- ---------- ------------ ----------- ------------
BALANCE, March 31, 1996............ 7,500,000 57,692 -- (3,134,876) (15,152) (3,092,336)
Net income....................... -- -- -- 3,347,530 -- 3,347,530
---------- --------- ---------- ------------ ----------- ------------
BALANCE, March 31, 1997............ 7,500,000 57,692 -- 212,654 (15,152) 255,194
Net loss for the three months ended
June 30, 1997 (unaudited)........ -- -- -- (369,268) -- (369,268)
Compensation for shares sold to
employees below fair value
(unaudited)...................... -- -- 187,000 -- -- 187,000
---------- --------- ---------- ------------ ----------- ------------
Balance June 30, 1997
(unaudited)...................... 7,500,000 $ 57,692 $ 187,000 $ (156,614) $ (15,152) $ 72,926
---------- --------- ---------- ------------ ----------- ------------
---------- --------- ---------- ------------ ----------- ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
--------------------------------------- ------------------------
1995 1996 1997 1996 1997
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ 268,160 $(9,804,083) $ 3,347,530 $(1,418,144) $ (369,268)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization...................... 1,316,352 1,825,502 1,510,661 352,058 277,888
Bad debts.......................................... -- 880,409 16,312 1,804 --
Non-cash compensation.............................. -- -- -- -- 187,000
Loss on disposal of property and equipment......... 5,493 2,685 15,070 -- --
Changes in deferred income taxes................... 131,383 1,650,303 (1,224,350) -- --
Minority interest in net loss of subsidiary........ -- -- (12,136) -- (17,986)
Changes in operating assets and liabilities:
Due from Factor and accounts receivable.......... 1,978,901 79,005 (10,420,732) 3,654,441 9,464,124
Due from affiliates.............................. (904,029) 1,056,117 (803) (24,354) (47,426)
Inventories...................................... (581,963) 2,182,705 1,038,353 527,962 (3,239,566)
Income tax refunds receivable.................... (392,649) (3,807,350) 4,199,999 (947,193) (215,484)
Prepaid expenses and other assets................ (184,846) 1,048,635 562,162 (297,010) (1,133,226)
Accounts payable and accruals.................... 1,060,325 1,473,396 (3,334,494) (435,036) 519,662
Due to affiliates................................ 69,572 4,021,808 27,976 572,510 (655,209)
Income taxes payable............................. (1,278,661) 99,049 (458,276) (33,279) (25,417)
----------- ----------- ------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES..................................... 1,488,038 708,181 (4,732,728) 1,953,759 4,745,092
----------- ----------- ------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment................ (2,348,291) (1,055,182) (703,697) (74,713) (268,838)
Proceeds from disposals of property and equipment.... 12,226 367,838 10,318 -- --
Advances to officers................................. -- (22,828) (114,919) -- (28,921)
Repayment from officers.............................. -- 957 19,061 230 230
----------- ----------- ------------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.......... (2,336,065) (709,215) (789,237) (74,483) (297,529)
----------- ----------- ------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank credit facility.......... (961,015) 1,525,772 4,434,292 (3,128,097) (3,343,379)
Repayments of long--term obligations................. (83,425) (87,614) (72,668) (16,220) (11,449)
Payment of dividends payable......................... -- (700,000) -- -- --
Repayments of loan from officers..................... (574,116) (962,997) (387,401) (134,555) (157,096)
Loans from officers.................................. 373,227 925,453 842,967 622,593 50,484
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES..................................... (1,245,329) 700,614 4,817,190 (2,656,279) (3,461,440)
----------- ----------- ------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (2,093,356) 699,580 (704,775) (777,003) 986,123
CASH AND CASH EQUIVALENTS, beginning of year........... 2,663,210 569,854 1,269,434 1,269,434 564,659
----------- ----------- ------------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year................. $ 569,854 $ 1,269,434 $ 564,659 $ 492,431 $ 1,550,782
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................................ $ 510,638 $ 723,869 $ 440,267 $ 45,040 $ 118,412
----------- ----------- ------------- ----------- -----------
Income taxes paid.................................... $ 1,341,752 $ 853,389 $ 552,057 $ -- $ 1,200
----------- ----------- ------------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Capital lease obligation incurred.................... $ 106,891 $ -- $ -- $ -- $ 65,434
Offset of Accrued Officer's Salary
Net of Taxes, Applied Against Advances to Officers... $ -- $ -- $ 89,000 $ 89,000 $ --
----------- ----------- ------------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REORGANIZATION

Toymax International, Inc., a Delaware corporation ("Toymax" and the
"Company") was organized in Delaware on August 6, 1997 to acquire and continue
the various businesses conducted by Toymax, Inc., a New York corporation
("Toymax NY"), Toymax (H.K.) Limited, a private limited company organized under
the laws of Hong Kong ("Toymax HK"), Toymax (Bermuda) Limited, a company
organized under the laws of Bermuda ("Toymax Bermuda"), Toymax (Canada) Limited,
a corporation organized under the laws of Ontario ("Toymax Canada") and Toymax
(U.K.) Limited a company organized under the laws of England and Wales ("Toymax
UK") (collectively, the "Toymax Group"). Toymax HK and Toymax NY, historically
the Company's principal operating entities, were each formed in 1990. Toymax
Canada was formed in August 1997 and Toymax Bermuda was formed in September
1997. Toymax Bermuda will continue the business previously carried out by Toymax
HK on a going forward basis. Toymax NY owns a 75% interest in Craft Expression,
Inc. ("Craft"), a New York corporation. Prior to closing of the Offering, the
Company will complete the reorganization pursuant to which: (i) Toymax HK will
contribute all of the outstanding capital stock of its wholly-owned
subsidiaries, Toymax NY and Toymax UK, to the Company and (ii) the stockholders
of Toymax HK will exchange their 100,000 ordinary shares of Toymax HK stock for
425,686 shares of Common Stock of the Company and 4,500,000 shares of Preferred
Stock of Toymax HK for 24,224 shares of Common Stock of the Company (the
"Reorganization"). Following the Reorganization, Toymax NY, Toymax HK, Toymax
Bermuda, Toymax Canada and Toymax UK will be direct or indirect wholly-owned
subsidiaries of Toymax. Following the Reorganization and prior to completing the
Offering, the Company will effect a 16.67 to one stock split. See "Risk Factors
- -- Holding Company Structure."

The Reorganization has been accounted for as a reorganization of entities
under common control in a manner similar to a pooling of interests. The
financial statements present the results of the Company and its subsidiaries as
if the Company had been combined for all periods presented.

BUSINESS

Toymax HK and Toymax NY are involved in the designing, marketing and
distribution of toy products. Craft is involved in the designing, producing,
marketing and distributing of arts and craft products. Craft was substantially
inactive during the year ended March 31, 1997. Toymax UK was inactive during the
years ended March 31, 1995, 1996 and 1997 and the three months ended June 30,
1996 and 1997.

RECAPITALIZATION

The equity accounts of the Company have been retroactively adjusted as if
the Reorganization described above had occurred. The recapitalization will
include an exchange of each share of Toymax HK capital stock for $.01 par value
common stock and a subsequent 16.67 to 1 stock split by the Company (see Note
12).

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of intercompany accounts and
transactions. The consolidated financial statements are presented in U.S.
dollars.

F-8
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes investments with original maturities of
three months or less at the date of acquisition. Such investments are stated at
cost, which approximates market value, and amounted to $180,000, $490,000 and
$140,000 at March 31, 1996, March 31, 1997 and June 30, 1997, respectively.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Inventories consist principally of purchased finished goods. Prior to
1997, the Company maintained a small quantity of raw material inventory which
was used by a subcontractor to manufacture some of the Company's finished goods.

PROPERTY AND EQUIPMENT

Property and equipment are stated at original cost. Depreciation of
machinery, equipment and molds, and furniture and fixtures, is computed by the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized by the straight-line method over the shorter of their
economic lives or the terms of the leases.

TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS

Substantially all assets and liabilities of the Company are translated at
year end exchange rates, while income and expenses are translated at average
exchange rates for the year. Gains and losses resulting from translation of
foreign currency financial statements are deferred and classified as a separate
component of stockholders' equity.

INCOME TAXES

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

REVENUE RECOGNITION

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

ADVERTISING

Advertising costs are charged to operations as incurred. Advertising
expenses for the years ended March 31, 1995, 1996 and 1997 were $9,343,011,
$10,837,349 and $6,341,591, respectively. Advertising expenses for the three
months ended June 30, 1996 and 1997 were $3,459,485 and $651,778, respectively.

F-9
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ROYALTIES

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

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses are charged to operations as incurred.
Research and development expenses for the years ended March 31, 1995, 1996, and
1997 were $3,674,031, $2,029,095 and $1,845,468, respectively. Research and
development expenses for the three months ended June 30, 1996 and 1997 were
$268,914 and $468,342, respectively.

FAIR VALUE OF FINANCIAL STATEMENTS

The carrying amounts of certain financial instruments, including cash, due
from factor, accounts receivable and accounts payable, approximate fair value as
of March 31, 1996, March 31, 1997 and June 30, 1997 because of the relatively
short-term maturity of these instruments. The carrying value of the bank credit
facility and long-term debt, including the current portion, approximates fair
value as of March 31, 1996 and 1997 based upon the borrowing rates currently
available to the Company for bank loans with similar terms and average
maturities. Fair value of the amounts due to or from affiliates cannot be
readily determined because of the nature of the terms.

EARNINGS (LOSS) PER SHARE

Per share data is calculated using the weighted average number of common
shares outstanding during the period.

SUPPLEMENTAL NET INCOME (LOSS) PER SHARE

Supplemental net income (loss) per share is based on the weighted average
number of shares of common stock and common stock equivalents used in the
calculation of income (loss) per share (7,500,000 at March 31, 1997 and June 30,
1997), plus the estimated number of shares (446,000 for March 31, 1997 and
938,600 for June 30, 1997) that would need to be sold by the Company in order to
fund the repayment of the outstanding bank debt ($4,013,000 at April 1, 1996 and
$8,447,000 at April 1, 1997) which is to be paid out of the proceeds of the
proposed public offering (see Note 12).

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

In 1997, the Company adopted the Statement of Financial Accounting Standard
No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF." The effect of adopting this standard was
insignificant.

ACCOUNTING FOR STOCK BASED COMPENSATION

In connection with its adoption of Statement of Financial Accounting
Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.123"), the
Company will adopt the intrinsic value method of

F-10
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

accounting for employee stock options, and disclose the pro forma impact on net
income and earnings per share as if the fair value-based method had been
applied.

NEW ACCOUNTING STANDARD

On March 3, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "EARNINGS PER SHARE". This pronouncement provides for the
calculation of Basic and Diluted earnings per share which is different from the
current calculation of Primary and Fully Diluted earnings per share. The effect
of adopting this new standard is not material.

NEW ACCOUNTING STANDARDS NOT YET ADOPTED

In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.

Statement of Financial Standards (SFAS) No. 130, REPORTING COMPREHENSIVE
INCOME, establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements.

SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A
BUSINESS ENTERPRISE, establishes standards for the way that public enterprises
report information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.

USE OF ESTIMATES

The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Among the more significant estimates included in these
financial statements are the estimated allowance for doubtful accounts
receivable, allowance for returns, and the deferred tax asset valuation
allowance. Actual results could differ from those and other estimates.

F-11
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISKS

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

The Company established an allowance for accounts receivable based upon
factors surrounding the credit risk of specific customers historical trends and
other information. See Note 9 for information relating to the concentration of
sales to major customers.

RECLASSIFICATIONS

Certain March 31, 1996 amounts were reclassified to conform to the March 31,
1997 presentation.

INTERIM PERIODS

The Financial statements and related notes thereto as of June 30, 1997 and
for the three months ended June 30, 1996 and 1997 are unaudited and have been
prepared on the same basis as the audited financial statements included herein.
In the opinion of management, such unaudited financial statements include all
adjustments necessary to present fairly the information set forth therein. These
adjustments consist solely of normal recurring accruals. The interim results are
not necessarily indicative of the results for any future period.

2. DUE FROM FACTOR AND ACCOUNTS RECEIVABLE

In the normal course of business, Toymax NY sells substantially all of its
accounts receivable, without recourse, to a factor, which is a subsidiary of a
major financial institution, and receives payment from the Factor when the
accounts are collected. Finance charges are charged at 1.25% on the first $7.5
million of factored sales, 0.75% for sales between $7.5 million and $50 million
and 0.50% for sales in excess of $50 million.

The amount due from factor is pledged as security to the Bank (see Note 5).
Pursuant to an agreement among Toymax NY, the Bank and the Factor, Toymax NY
does not receive any advances from the Factor.

Accounts receivable consist mainly of sales not factored and amounts charged
back by the Factor as a result of disputes primarily relating to unearned
discounts and damaged shipments, net of reserves for doubtful accounts which
Toymax NY is attempting to collect. Reserves for doubtful accounts were
$811,969, $739,219 and $722,095 as of March 31, 1996, March 31, 1997 and June
30, 1997, respectively. Write-offs for bad debts were $549,457, $146,835 and
$89,062 for the years ended March 31, 1995, 1996 and 1997, respectively.
Write-offs were $0 and $17,124 for the three months ended June 30, 1996 and
1997, respectively.

3. INVENTORIES

Inventories are pledged as security to the Bank and Congress Talcott
Corporation ("CTC") (see Note 5). During 1997 an advertising agency which
provides services to Toymax NY, held a subordinated security

F-12
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

3. INVENTORIES (CONTINUED)
interest in a portion of Toymax NY's inventory, after the Bank. As of July 14,
1997, the advertising agency no longer has or requires a security interest in
the subsidiary's inventory.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of:

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
LIFE IN -------------------------- ------------
YEARS 1996 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Machinery, equipment and molds........................... 2-5 $ 5,604,332 $ 6,215,874 $ 6,385,157
Furniture and fixtures................................... 5-10 369,513 310,480 311,477
Leasehold improvements................................... 2-8 435,330 493,211 614,970
------------ ------------ ------------
6,409,175 7,019,565 7,311,604
Less accumulated depreciation and amortization........... 3,385,962 4,828,704 5,083,344
------------ ------------ ------------
$ 3,023,213 $ 2,190,861 $ 2,228,260
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

Depreciation and amortization charged to operations were $1,316,352
$1,825,502 and $1,510,661 in 1995, 1996 and 1997, respectively. Depreciation and
amortization charged to operations were $352,059 and $277,888 for the three
months ended June 30, 1996 and 1997, respectively.

The Company changed the estimated useful life of certain molds to conform to
anticipated usage as of April 1, 1996. The change in estimate resulted in
additional operating income of $121,801 for the year ended March 31, 1997. In
addition, the Company wrote off molds with a net book value of approximately
$48,000 in the year ended March 31, 1997. During the year ended March 31, 1996,
the Company sold molds at book value which totaled $349,296, to one of its
affiliates, DHS Holdings (see Note 6).

5. BANK CREDIT FACILITY

Toymax, HK, Toymax NY and Tai Nam Industrial Company Limited (see Note 6)
are parties to a credit facility agreement (the "Agreement") with State Street
Bank and Trust Company, Hong Kong Branch (the "Bank") and CTC. The Agreement, as
amended in July 1997, provides for a credit facility not to exceed $26 million
at any one time. The amounts available within this total include:

a. A revolving credit facility (the "Financing Facility") for use by Toymax NY
in the amount of the lesser of 70% of factored accounts receivable or $25
million. The amount due from factor is pledged as security to the Bank (see
Note 2).

b. A seasonal inventory credit facility (the "Seasonal Facility") of $5
million, whereby Toymax NY can borrow up to 50% of the current season's
inventory. Toymax NY's inventory is pledged as security to the Bank and CTC.
The total borrowings under the Financing Facility and the Seasonal Facility
cannot exceed $25 million.

c. A trade facility (the "Trade Facility") for use by Tai Nam Industrial
Company Limited, and/or Toymax HK in the amount of $1 million for letters of
credit and export bills.

F-13
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

5. BANK CREDIT FACILITY (CONTINUED)
The Financing Facility is jointly and severally guaranteed by three of the
Company's stockholders, and is also guaranteed by Tai Nam Industrial Company
Limited, Jauntiway Investments Limited, Concentric Toys Limited, and Toymax NY
(see Note 6) and requires a cash reserve of 12% of collection proceeds net of
chargebacks which is not to exceed $6 million. As of March 31, 1997, there was
no cash reserve requirement. The Trade Facility is guaranteed by Toymax HK, Tai
Nam Industrial Company Limited and by a stockholder of the Company and of Tai
Nam Industrial Company Limited. No fees are charged to the Company for the
guarantees.

Borrowings under the Agreement are due on demand and bear interest at the
Bank's United States prime rate (8.5% at March 31, 1997) plus 1/2% for the
Financing Facility and the Seasonal Facility and at the Bank's United States
prime rate plus 3/4% for the Trade Facility. At March 31, 1996, March 31, 1997
and June 30, 1997, the Company had borrowings of $4,012,795, $8,447,087, and
$5,103,708, respectively. At June 30, 1997, additional borrowing availability
was approximately $5,574,000.

6. DUE TO/FROM AFFILIATES

The majority stockholder of the Company owns significant interests in
several other companies, including Tai Nam Industrial Company Limited ("Tai
Nam"), Concentric Toys Limited ("Concentric"), Fun Maker Limited, ("Fun Maker"),
DHS Holdings, Children Entertainment (U.S.A.) Ltd., Sportmax Ltd. and Jauntiway
Investment Limited ("Jauntiway"). A portion of the Toymax NY's products were
assembled by Hot Items Specialties Inc. ("Hot Items"), a company owned by a
family member of one of the Company's stockholders. Factory space was shared
with Hot Items by Toymax NY. In July 1996, this arrangement was terminated.
Since that time, Toymax NY has purchased the majority of its merchandise
directly from either Concentric or Tai Nam. The majority of the merchandise is
manufactured in China by an affiliate (Jauntiway).

The Company has significant transactions with Tai Nam and Concentric. These
transactions include purchases of the majority of the Company's and its
subsidiary's merchandise and certain sales of the subsidiary's products. These
affiliates have provided extended payment terms for these purchases and have
agreed to continue such payment terms for fiscal 1998 if necessary.

In January 1996, Toymax NY entered into an agency agreement with Concentric.
Concentric acted as a purchasing agent of and received an agency fee of 7% on
the products purchased by Toymax NY. In April 1997, Toymax HK and Toymax NY
entered into a new agency agreement with Tai Nam. The new agreement provides for
an agency fee of 7% on products purchased. The agency agreement also requires
Tai Nam to provide all administrative services to Toymax HK. As a result of the
new agreement, Tai Nam ceased charging Toymax HK for reimbursement of certain
expenses.

On June 1, 1996, Toymax HK entered into an agency agreement with Tai Nam
under which Toymax HK provided certain administrative services to Tai Nam in
exchange for a fee equal to 7% of the gross invoice value of purchases from Tai
Nam by a distributor. On January 1, 1997, this agreement was terminated. During
the year ended March 31, 1997, Toymax HK received fees from Tai Nam of
approximately $136,534 in connection with this agreement.

In April 1997, Toymax N.Y. entered into an Agency Agreement with Tai Nam
under which Toymax NY would act as Purchasing Agent for Tai Nam in the United
States in exchange for a fee equal to 5% of such purchases. During the quarter
ending June 30, 1997 such fees amounted to $20,207.

F-14
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

6. DUE TO/FROM AFFILIATES (CONTINUED)

In September 1997, the Company entered into a Manufacturing Agreement with
Tai Nam and Jauntiway. This agreement contains standard manufacturing terms as
well as providing that the Company shall not be required to provide a letter of
credit or other security to Tai Nam or Jauntiway in connection with its purchase
orders.

Due from officers represents cash advances to two of the Company's Officers.

Due to officer represents an amount advanced to the Company by the Company's
majority stockholder. The advances bear no interest and are due on demand.

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

<TABLE>
<CAPTION>
BALANCES
-------------------------------------------
MARCH 31, JUNE 30,
---------------------------- -------------
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
Due from affiliates:
Concentric -- primarily for expenses paid on behalf of
Concentric........................................................ $ -- $ -- $ 45,626
Children Entertainment (U.S.A.) Ltd -- Merchandise sales.......... -- -- 1,800
Sportmax Limited -- primarily for expenses paid on behalf of
Sportmax Limited.................................................. 3,564 4,367 4,367
------------- ------------- -------------
$ 3,564 $ 4,367 $ 51,793
------------- ------------- -------------
------------- ------------- -------------
Due to affiliates:
Concentric -- primarily from merchandise purchases................ $ 6,112,159 $ 7,297,183 $ 2,959,238
DHS Holdings -- royalties collected on behalf of DHS Holdings..... 339,150 766,736 766,080
Tai Nam -- primarily from merchandise purchases................... 4,277,186 2,676,262 6,362,883
Officer of Craft -- loan.......................................... -- 16,290 --
Fun Maker Ltd. -- collected on behalf of Fun Maker................ -- -- 13,061
------------- ------------- -------------
$ 10,728,495 $ 10,756,471 $ 10,101,262
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

F-15
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

6. DUE TO/FROM AFFILIATES (CONTINUED)

<TABLE>
<CAPTION>
TRANSACTIONS
-------------------------------------------------------------------------
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Purchases from:
Tai Nam............................ $ 12,879,209 $ 15,383,684 $ 13,573,369 $ 1,022,722 $ 6,930,926
Concentric......................... 7,574,595 9,055,339 20,632,367 209,965 --
Hot Items.......................... 3,459,012 1,483,844 -- -- --
------------- ------------- ------------- ------------- -------------
$ 23,912,816 $ 25,922,867 $ 34,205,736 $ 1,232,687 $ 6,930,926
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Sales to:
Tai Nam............................ $ 1,154,973 $ 915,032 $ 679,645 $ 309,147 $ 614,705
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Mold Purchases:
Tai Nam............................ $ 182,678 $ 616,250 $ 438,435 $ 56,326 $ 62,613
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Mold Sales:
DHS Holdings....................... $ -- $ 349,296 $ -- -- --
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------

Agency fees earned by:
Tai Nam............................ $ -- $ -- $ -- $ -- $ 488,124
Concentric......................... 633,131 898,384 1,420,768 -- --
------------- ------------- ------------- ------------- -------------
$ 633,131 $ 898,384 $ 1,420,768 $ -- $ 488,124
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Reimbursed expenses charged by Tai
Nam................................ $ 443,996 $ 545,579 $ 799,750 $ 165,112 $ 462
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Agency fees earned from Tai Nam...... $ -- $ -- $ -- $ -- $ 20,207
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>

F-16
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

7. INCOME TAXES

The income tax benefit consists of the following

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------------------- ------------------------
1995 1996 1997 1996 1997
----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current:
Hong Kong................................. $ 208,327 $ 356,533 $ 437,257 $ 25,097 $ 62,096
US Federal................................ (378,744) (4,156,228) 53,000 (847,490) (170,863)
US State and City......................... (159,141) (104,340) 52,893 (99,704) (43,420)
----------- ------------- ------------- ----------- -----------
$ (329,558) $ (3,904,035) $ 543,150 $ (922,097) $ (152,187)
----------- ------------- ------------- ----------- -----------
Deferred:
US Federal................................ $ 44,670 $ 1,402,757 $ (1,040,350) $ -- $ --
US State and City......................... 86,713 247,546 (184,000) -- --
----------- ------------- ------------- ----------- -----------
131,383 1,650,303 (1,224,350) -- --
----------- ------------- ------------- ----------- -----------
Income tax benefits......................... $ (198,175) $ (2,253,732) $ (681,200) $ (922,097) $ (152,187)
----------- ------------- ------------- ----------- -----------
----------- ------------- ------------- ----------- -----------
</TABLE>

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------------------- ------------------------
1995 1996 1997 1996 1997
----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Federal income tax expense (benefit), at
statutory rate of 34%..................... $ 23,795 $ (4,100,000) $ 903,000 $ (796,000) $ (246,041)
State income tax expense (benefit), net of
federal tax benefits...................... (47,803) (587,000) 47,000 (93,291) (28,656)
Changes in deferred tax valuation
allowance................................. -- 2,668,500 (1,277,500) -- --
Non-deductible expenses..................... 31,586 28,980 57,657 -- 187,471
Non-taxable income.......................... -- -- (5,987) -- --
Prior year (over) under accrual............. (15,158) (13,745) 57,373 -- --
Tax effect of differences in U.S. and Hong
Kong statutory rates...................... (190,595) (250,467) (462,743) (32,806) (64,961)
----------- ------------- ------------- ----------- -----------
Income tax benefits......................... $ (198,175) $ (2,253,732) $ (681,200) $ (922,097) $ (152,187)
----------- ------------- ------------- ----------- -----------
----------- ------------- ------------- ----------- -----------
</TABLE>

F-17

<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

7. INCOME TAXES (CONTINUED)
The components of deferred tax assets/(liabilities) are as follows:

<TABLE>
<CAPTION>
MARCH 31,
--------------------------
<S> <C> <C>
1996 1997
------------- -----------
Deferred tax assets:
Current:
Reserve for sales allowances and doubtful accounts................................. $ 503,000 $ 362,850
Inventory reserves................................................................. 628,000 573,000
Accrued expenses................................................................... 56,500 105,500
Other.............................................................................. -- 16,000
------------- -----------
1,187,500 1,057,350
------------- -----------
Long term:
Design costs....................................................................... 720,000 616,000
Property and equipment............................................................. 59,000 203,000
Accrued expenses................................................................... 29,000 29,000
Legal fees--trademarks............................................................. 189,000 190,000
State net operating loss carryforwards............................................. 684,000 684,000
Federal net operating loss carryforwards........................................... -- 36,000
------------- -----------
1,681,000 1,758,000
------------- -----------
Total deferred tax assets............................................................ 2,868,500 2,815,350
Deferred tax liabilities:
Property and equipment............................................................. (159,772) (159,772)
Less valuation allowance............................................................. (2,868,500) (1,591,000)
------------- -----------
Net deferred tax assets (liabilities)................................................ $ (159,772) $ 1,064,578
------------- -----------
------------- -----------
</TABLE>

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

Because of the Company's U.S. losses in 1995 and 1996, a valuation allowance
for the deferred tax assets was provided due to the uncertainty as to future
realization. During the year ended March 31, 1997, the valuation allowance was
reduced to reflect a net deferred tax asset equal to the anticipated tax benefit
of the temporary differences which are expected to be realized within one year
based on the Company's 1998 projected U.S. income.

8. COMMITMENTS AND CONTINGENCIES

LONG-TERM OBLIGATIONS

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

F-18
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company rents a showroom from one of its shareholders who is also a
director of the Company, under a two--year lease commencing August 1, 1996 for a
monthly rent of $5,900. The lease provides for the Company to also pay all real
estate taxes and other charges and for a security deposit of $11,794.

The subsidiary leases certain equipment under capital leases. The gross
amount of assets recorded under capital leases is $250,775. Depreciation expense
provided on such assets is included in both cost of goods sold and selling and
administrative expenses in the statements of operations. Equipment with a net
book value of $137,455 was collateralized under capital leases.

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

<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING MARCH 31, LEASES LEASES
- ---------------------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
1998.................................................................................... $ 522,782 $ 40,611
1999.................................................................................... 462,271 8,847
2000.................................................................................... 448,392 --
2001.................................................................................... 458,394 --
2002.................................................................................... 468,695 --
Thereafter.............................................................................. 885,441 --
------------ ----------
$ 3,245,975 49,458
------------
------------
Less amounts representing interest...................................................... 3,444
----------
Present value of capital lease payments................................................. 46,014
Less current portion.................................................................... 37,714
----------
Long-term obligation.................................................................... $ 8,300
----------
----------
</TABLE>

Rent expense for the years ended March 31, 1995, 1996 and 1997 was $330,943,
$332,653 and $364,066, respectively. Rent expense for the six months ended June
30, 1996 and 1997 was $93,633 and $155,833, respectively.

RAW MATERIAL

Subsequent to March 31, 1997, the Company sold part of its raw material
inventory at cost to an affiliate, Tai Nam Industrial Limited, for a total of
$664,141.

EMPLOYMENT AGREEMENTS

The Company has employment agreements in effect with certain key officers
and employees, which expire at various dates through January 1999. The total
annual salaries under these agreements amount to approximately $755,000 and
$291,000 for fiscal 1998 and 1999, respectively. These agreements will be
superceded by the employment agreements entered into by the Company in
connection with its proposed public offering (see Note 12(d)).

F-19
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
GUARANTY OF AFFILIATE'S LOAN AGREEMENT

Toymax HK, along with other affiliates, is a guarantor on Tai Nam's general
banking facilities agreement with a bank. The agreement provides for an
import/export line of credit of approximately $4.7 million, of which $260,000 is
jointly available to the Company. As of March 31, 1996 and 1997 and June 30,
1997, Tai Nam had borrowed approximately $2.2 million, $2.5 million and $4.7
million, respectively. Toymax HK had no borrowings under this line of credit as
of March 31, 1996 and 1997.

LITIGATION

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

In or about November 1996 a company with which the Company had a
representation agreement initiated a lawsuit against Toymax NY and Toymax HK
alleging breach of contract, tortious interference with the contract and unjust
enrichment. The complaint alleges that the Companies breached a provision of a
1993 Representation Agreement by failing to pay its royalties from January 1996.
The plaintiff seeks an accounting, unspecified damages and attorney's fees. The
Companies served their answer, affirmative defenses and counterclaims, denying
all of the substantive claims in the complaint. The counterclaim seeks damages
arising out of breach of the Representation Agreement by the plaintiff.
Management believes that there is no merit to the plaintiff's claim and intends
to defend against them and to prosecute its counterclaim vigorously.

In April 1997, a developer of toy games filed a complaint against the
Company alleging breach of express and implied contracts, unjust enrichment,
misappropriation, conversion and tortious interference with the contract and
seeking damages of $1.0 million. The substance of the allegations are that the
Company orally agreed to pay royalties to this developer relating to a game
allegedly conceived by the developer. Upon motion to the court, the Company has
been granted an extension for its response. The Company believes there is no
merit to this claim and intends to defend the action vigorously.

In April 1996, the Company filed a complaint against a marketing company
from which it also licenses certain trademarks. The Company alleged eight claims
of breach of contract and misrepresentation, seeking compensatory damages of $20
million. In addition, the Company alleged three claims of misrepresentation and
breach of contract, arising from the defendants alleged breach of a license
agreement between the parties. In connection with these additional claims, the
Company sought $2 million. In July 1996, the defendants filed counterclaims
against the Company, alleging breach of contract, seeking an accounting,
alleging a constructive trust, unjust enrichment and conversion, seeking in
excess of $750,000. Discovery in these matters is ongoing and the Company
intends to prosecute and defend these actions vigorously. There can be no
assurance as to the outcome of these lawsuits.

9. MAJOR CUSTOMERS

The Company's top five customers accounted for approximately 58%, 58% and
69% of the Company's net sales in 1995, 1996 and 1997, respectively. These
customers accounted for approximately 71% and 63%

F-20
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

9. MAJOR CUSTOMERS (CONTINUED)
of the Company's net sales in the three months ended June 30, 1996 and 1997,
respectively. Net sales to Toys "R" Us accounted for more than 10% of net sales
during each of the above periods.

10. EMPLOYEE BENEFIT PLAN

Toymax NY has a tax deferred retirement savings plan which is intended to
qualify under Section 401(k) of the Internal Revenue Code. Eligible participants
may contribute a percentage of their compensation, but not in excess of the
maximum allowed under the Internal Revenue Code. The plan provides for matching
contributions at Toymax NY's option. Toymax NY made no contributions for the
years ended March 31, 1995, 1996 and 1997.

F-21
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

11. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS

The Company operates in one business segment--the importation and wholesale
distribution of toys. Operations in different geographic areas are summarized
below (net of consolidating eliminations):

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG UNITED STATES CONSOLIDATED
------------- ------------- -------------
REVENUES--NET SALES................................................. $ 15,359,287 $ 55,263,625 $ 70,622,912
INCOME (LOSS) BEFORE INCOME TAX BENEFIT............................. 1,273,301 (1,203,316) 69,985
IDENTIFIABLE ASSETS................................................. 2,682,039 22,794,093 25,476,132
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG UNITED STATES CONSOLIDATED
------------- -------------- --------------
REVENUES--NET SALES............................................... $ 16,670,909 $ 26,950,690 $ 43,621,599
INCOME (LOSS) BEFORE INCOME TAX BENEFIT........................... 1,787,453 (13,845,268) (12,057,815)
IDENTIFIABLE ASSETS............................................... 2,384,642 19,742,046 22,126,688
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG UNITED STATES CONSOLIDATED
------------- ------------- -------------
REVENUES--NET SALES................................................. $ 15,889,930 $ 38,792,705 $ 54,682,635
INCOME (LOSS) BEFORE INCOME TAX BENEFIT AND MINORITY
INTEREST IN NET LOSS OF SUBSIDIARY................................ 2,646,398 7,796 2,654,194
IDENTIFIABLE ASSETS................................................. 1,901,514 24,376,328 26,277,842
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG UNITED STATES CONSOLIDATED
------------- ------------- -------------
REVENUES--NET SALES................................................. $ 1,686,276 $ 992,638 $ 2,678,914
INCOME (LOSS) BEFORE INCOME TAX BENEFIT............................. 152,376 (2,492,617) (2,340,241)
IDENTIFIABLE ASSETS................................................. 2,278,602 15,788,858 18,067,460
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG UNITED STATES CONSOLIDATED
------------- ------------- -------------
REVENUES--NET SALES................................................. $ 2,631,509 $ 4,459,353 $ 7,090,862
INCOME (LOSS) BEFORE INCOME TAX BENEFIT AND MINORITY
INTEREST IN NET LOSS OF SUBSIDIARY................................ 184,210 (723,651) (539,441)
IDENTIFIABLE ASSETS................................................. 2,623,216 19,912,715 22,535,931
</TABLE>

12. SUBSEQUENT EVENTS

(A) PUBLIC OFFERING

The Company has signed an agreement with an underwriter in connection with a
proposed public offering of up to 3,105,000 shares of the Company's common
stock, and the Company will issue warrants to the underwriter to purchase
195,750 shares of Common Stock at a price equaling 120% of the initial public

F-22
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

12. SUBSEQUENT EVENTS (CONTINUED)
offering price. There will be no charges to operations as a result of the
issuance of common stock and warrants to the underwriter.

(B) REORGANIZATION

In connection with the proposed public offering, the Company intends to
reorganize, authorize preferred stock, enter into employment agreements with its
officers and establish a Stock Option Plan and an Executive Bonus Plan. See
details discussed in Note 1 and 12(c).

In October 1997, the Company authorized 5,000,000 shares of Preferred Stock,
$.01 par value per share. The rights, preferences and limitations of the
Preferred Stock may be designated by the Company's Board of Directors at any
time.

(D) EMPLOYMENT AGREEMENTS

In October 1997, the Company entered into several employment agreements with
certain key officers and employees which expire at various dates through
September 2000. The total annual base salaries under these agreements amount to
$1,513,000 for the first year, with annual increases of up to 10%. In addition,
the employment agreements of certain executive officers contain provisions
entitling them to participate in the Executive Bonus Plan and a stock
appreciation bonus, as well as providing for enhanced compensation in the event
of a change of control. The stock appreciation bonus applies to two of the
Company's executives and for each is equal to 1% of the increase in the fair
market value of the Company's outstanding common stock over a stated measurement
period.

(E) STOCK OPTION PLAN

In October, 1997, the Board of Directors adopted and the stockholders of the
Company approved the Stock Option Plan. The Stock Option Plan provides for the
grant to qualified employees (including officers and directors) of the Company
of options to purchase shares of the Common Stock. A total of 750,000 shares of
Common Stock will be reserved by the Company for issuance upon exercise of stock
options granted or which may be granted under the Stock Option Plan. The Stock
Option Plan will terminate on the tenth anniversary of its adoption.

The Stock Option Plan is administered by the Board of Directors or by a
committee (the "Committee") consisting of two or more "independent" directors.
The Board and/or Committee have complete discretion to select the optionee and
to establish the terms and conditions of each option, subject to the provisions
of the Plan. Options granted under the Stock Option Plan may or may not be
"incentive stock options" as defined in Section 422 of the Internal Revenue Code
("Incentive Options") depending upon the terms established by the Board or
Committee at the time of grant, but the exercise of Incentive Options granted
may not be less than 100% of the fair market value of the Common Stock as of the
date of the grant (110% of the fair market value if the grant is an Incentive
Option to an employee who owns more than 10% of the outstanding voting power of
the Company). Options may not be exercised more than 10 years after the grant
(five years if the grant is an Incentive Option to any employee who owns more
than 10% of the outstanding voting power of the Company). Options granted under
the Stock Option Plan are

F-23
<PAGE>
TOYMAX INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)

12. SUBSEQUENT EVENTS (CONTINUED)
not transferable and may be exercised only by the respective grantees during
their lifetime or by their heirs, executors or administrators in the event of
death. Under the Stock Option Plan, shares subject to cancelled or terminated
options are reserved for subsequently granted options. The number of options
outstanding and the exercise price thereof are subject to adjustment in the case
of certain transactions such as mergers, recapitalizations, stock splits or
stock dividends.

Prior to the closing of the Offering, the Company intends to grant options
to purchase an aggregate of 414,000 shares of Common Stock Option Plan to
certain officers and directors of the Company. There will be no charges to
operations as a result of the granting of these options.

The Company plans to apply APB Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations in accounting for the
Company's Stock Option Plans. Under APB 25, for options granted to employees at
exercise prices equal to or greater than fair market value of the underlying
common stock at the date of grant, no compensation cost is recognized.

Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation": ("SFAS No. 123") requires the Company to provide pro
forma information regarding net income and net income per common share as if
compensation costs for the Company's stock option plans had been determined in
accordance with the fair value method prescribed in SFAS No. 123.

(F) EXECUTIVE BONUS PLAN

Prior to the closing of the proposed public offering, it is expected that
the Board of Directors will have adopted and the shareholders will have approved
the Toymax International, Inc. Executive Bonus Plan (the "Bonus Plan").

The Bonus Plan will be administered by the Compensation Committee of the
Board of Directors (the "Compensation Committee"). The Compensation Committee
will determine the key management employees of the Company who will be eligible
to participate in the Bonus Plan and the amount, if any, of each participant's
award based on such participant's performance. The aggregate amount of awards
made under the Bonus Plan for a fiscal year may not exceed an amount equal to
(i) 15% percent of the profit of the Company and its designated affiliates for
such year (as defined), reduced by (ii) 15% of the shareholders' equity of the
Company and such affiliates during such year.

(G) SALE OF STOCK

In December 1996, the principal shareholder sold 103,084 shares to certain
officers, employees and business associates and 150,000 shares to other persons
for an aggregate amount of approximately $709,000 based upon management's
estimate of fair value.

In June 1997, the principal shareholder sold 66,833 shares to certain
officers, employees and business associates for an aggregate amount of
approximately $187,000 and recorded non-cash compensation of an additional
$187,000 representing management's estimate of the discount from fair value.

F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFER MADE BY
THIS PROSPECTUS 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 THE SOLICITATION TO BUY
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
The Offering.................................... 6
Summary Financial Data.......................... 7
Risk Factors.................................... 8
The Reorganization.............................. 16
Use of Proceeds................................. 17
Dilution........................................ 18
Dividend Policy................................. 18
Capitalization.................................. 19
Selected Consolidated Financial Data............ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 21
Business........................................ 32
Management...................................... 50
Principal Stockholders.......................... 57
Certain Relationships and Related
Transactions.................................. 58
Description of Securities....................... 60
Shares Eligible for Future Sale................. 61
Certain Federal Tax Consequences................ 62
Underwriting.................................... 64
Legal Matters................................... 65
Experts......................................... 65
Additional Information.......................... 66
Index to Consolidated Financial Statements...... F-1
</TABLE>

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

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

[LOGO]

TOYMAX
INTERNATIONAL, INC.
2,700,000 SHARES

COMMON STOCK

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

PROSPECTUS

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

FAHNESTOCK & CO. INC.
WEDBUSH MORGAN SECURITIES

, 1997

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the issuance and distribution of the securities being registered hereunder
(including the shares of Common Stock which may be issued pursuant to the
over-allotment option). All of the amounts shown are estimates (except for the
SEC and the NASD registration fees).

<TABLE>
<S> <C>
SEC filing fee.................................................... $ 9,109
NASD filing fee................................................... 3,793
NASDAQ listing fee................................................ 42,000
Transfer agent's fee.............................................. 3,500
Printing and engraving expenses................................... 120,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 150,000
Miscellaneous expenses............................................ 21,598
---------
Total......................................................... $ 650,000
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws provide
that the Registrant will indemnify its directors, executive officers, other
officers, employees and agents to the fullest extent permitted by Delaware law.

The Registrant's Amended and Restated Certificate of Incorporation provides
for the elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to the Registrant and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.

Reference is made to Section 7 of the Underwriting Agreement (Exhibit 1.1 to
this Registration Statement) which provides for indemnification by the
Underwriters and their controlling persons, on the one hand, and of the
Registrant and its controlling persons on the other hand, against certain civil
liabilities, including liabilities under the Securities Act.

The Registrant intends to apply for a director and officer liability
insurance policy, under which each director and certain officers of the Company
would be insured against certain liabilities.

II-1
<PAGE>
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES.

The Registrant was organized as a Delaware corporation on August 6, 1997.
The only shares issued by the Registrant are 7,500,000 shares of Common Stock
issued in exchange for 425,686 shares of Common Stock and 24,224 shares of
Preferred Stock of Toymax (H.K.) Limited held by the stockholders of Toymax
(H.K.) Limited.

The Company believes that the issuances described above were made in
reliance upon the exemption from the registration requirements of the Securities
Act provided by Section 4(2) of the Securities Act for transactions by an issuer
not involving a public offering. No underwriter or underwriting discount or
commission was involved in any of such issuances.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

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

<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1(a) Certificate of Incorporation of the Registrant.
*3.1(b) Form of Amended and Restated Certificate of Incorporation of the
Registrant.
*3.2 By-Laws of the Registrant.
*4.1 Specimen Stock Certificate for shares of Common Stock.
*4.2 Form of Representative's Warrant Agreement including Form of Redeemable
Warrant Certificate.
*5.1 Opinion of Baer Marks & Upham LLP.
*10.1 Form of 1997 Stock Option Plan.
*10.2 Form of Executive Bonus Plan.
*10.3 Agreement of lease of the Company's offices at 125 E. Bethpage Road,
Plainview, New York.
*10.4 Lease of the Company's showroom at 200 Fifth Avenue, New York, New York,
as amended.
*10.5 Tenancy Agreement between David Chu Ki Kwan, Frances Leung Shuk Kuen and
Toymax (H.K.) Limited for the Company's showroom at Concordia Plaza, No. 1
Science Museum Road, Tsimshatsui East, Kowloon
*10.6 Agency Agreement dated April 1, 1997, between the Company and Tai Nam.
*10.7 Credit Facility Agreement dated June 12, 1997 between the Company and
State Street.
*10.8 Security Agreement with State Street dated June 17, 1997.
*10.9 Factoring Agreement dated June 4, 1991 between the Company and Congress
Talcott Corporation, as amended.
*10.10 Deed of Cross Guarantees by Tai Nam, Charter King Limited, Concentric and
Toymax HK to the Hong Kong and Shanghai Banking Corporation Limited.
*10.11 Form of Employment Agreement with Steven Lebensfeld.
*10.12 Form of Employment Agreement with Harvey Goldberg.
*10.13 Form of Employment Agreement with Kenneth Price.
*10.14 Form of Employment Agreement with Carmine Russo.
10.15 Form of Employment Agreement with Andrew Stein.
*10.16 Form of Employment Agreement with William A. Johnson, Jr.
*10.17 Form of Manufacturing Agreement between the Company, Tai Nam and
Jauntiway.
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
*10.18 Form of Amendment to Agency Agreement between the Company and Tai Nam.
16.1 Letter re Change in Certifying Accountant.
*21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Baer Marks & Upham LLP.
23.2 Consent of BDO Seidman LLP, independent certified public accountants.
23.3 Consent of Deloitte Touche Tohmatsu, independent auditors.
*24.1 Powers of Attorney
*27 Financial Data Schedule
</TABLE>

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

* Previously filed.

ITEM 16(B). FINANCIAL STATEMENT SCHEDULES

Schedule II--Valuation and qualifying accounts

All other schedules have been omitted because the information to be set
forth therein is not applicable or is shown in the financial statements or the
notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(a)(1) to 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 of 1933 (the "Act");

(ii) reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volumes and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and

(iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial BONA FIDE
offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.

(c) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the

II-3
<PAGE>
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

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

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

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 15th day of October, 1997.

TOYMAX INTERNATIONAL, INC.

BY: /S/ STEVEN A. LEBENSFELD
-----------------------------------------
Steven A. Lebensfeld
PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to this registration statement has been signed by the following persons in
the capacities and on the dates stated:

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Chairman
- ------------------------------ October 15, 1997
David Ki Kwan Chu

/s/ STEVEN A. LEBENSFELD President (Principal
- ------------------------------ Executive Officer) and October 15, 1997
Steven A. Lebensfeld Director

* Executive Vice President
- ------------------------------ and Director October 15, 1997
Harvey Goldberg

Chief Financial Officer and
/s/ WILLIAM A. JOHNSON, JR. Treasurer (Principal
- ------------------------------ Financial and Accounting October 15, 1997
William A. Johnson, Jr. Officer)

<TABLE>
<S> <C> <C>
/s/ WILLIAM A. JOHNSON, JR.
-------------------------------------
William A. Johnson, Jr.
*By: ATTORNEY-IN-FACT

/S/ STEVEN A. LEBENSFELD
-------------------------------------
Steven A. Lebensfeld
ATTORNEY-IN-FACT
</TABLE>

II-5
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENT SCHEDULE
THREE YEARS ENDED MARCH 31, 1997 AND
THREE MONTHS ENDED JUNE 30, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS S-2

INDEPENDENT AUDITORS' REPORT S-3

SCHEDULE:

II Valuation and qualifying accounts S-4
</TABLE>

S-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders of
Toymax International, Inc.

The audits referred to in our report dated July 31, 1997 except for Notes 1
and 12, which are as of , 1997, relating to the 1996 and 1997
consolidated financial statements of Toymax International, Inc. and
subsidiaries, which are contained in Part I of this registration statement on
Form S-1, included the audits of the accompanying schedule of valuation and
qualifying accounts. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
1996 and 1997 information included on this financial statement schedule based
upon our audits.

In our opinion, the 1996 and 1997 information included on such financial
statement schedule presents fairly, in all material respects, the information
set forth therein.

BDO Seidman, LLP
Mitchel Field, New York
July 31, 1997

S-2
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders of

Toymax International, Inc.

The audit referred to in our report dated November 11, 1995 except for Note 1 as
to which the date is , 1997, relating to the 1995 consolidated financial
statements of Toymax International, Inc. and subsidiaries, which are contained
in Part I of this registration statement of Form S-1, included the audit of the
accompanying schedule of valuation and qualifying amounts. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the 1995 information included on this
financial statement schedule based upon our audit.

In our opinion, the 1995 information included on such financial statement
schedule presents fairly, in all material respects, the information set forth
therein.

Deloitte Touche Tohmatsu
Hong Kong
November 11, 1995

S-3
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II

THREE YEARS ENDED MARCH 31, 1997 AND THREE MONTHS ENDED JUNE 30, 1996 AND 1997

(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONS
----------------------------------
<S> <C> <C> <C> <C> <C>
(1) (2)

<CAPTION>
----------------------------------
BALANCE AT
BEGINNING CHARGED TO COSTS CHARGED TO OTHER BALANCE AT END
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------ ---------- ---------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED VALUATION RESERVES:
YEAR ENDED MARCH 31, 1995:
Allowance for doubtful accounts... $ 627,852 $ -- $ -- $ 549,457 $ 78,395
---------- -------- -------- ----------- --------------
YEAR ENDED MARCH 31, 1996:
Allowance for doubtful accounts... $ 78,395 $ 880,409 $ -- $ 146,835 $ 811,969
---------- -------- -------- ----------- --------------
YEAR ENDED MARCH 31, 1997:
Allowance for doubtful accounts... $ 811,969 $ 16,312 $ -- $ 89,062 $ 739,219
---------- -------- -------- ----------- --------------
THREE MONTHS ENDED
JUNE 30, 1996:
Allowance for doubtful accounts... $ 811,969 $ 1,804 $ -- $ -- $ 813,773
---------- -------- -------- ----------- --------------
THREE MONTHS ENDED
JUNE 30, 1997:
Allowance for doubtful accounts... $ 739,219 $ -- $ -- $ 17,124 $ 722,095
---------- -------- -------- ----------- --------------
---------- -------- -------- ----------- --------------
</TABLE>

S-4
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------------------- ---------

10.15 Form of Employment Agreement with Andrew Stein.

16.1 Letter re Change in Certifying Accountant.

23.1 Consent of Baer Marks & Upham LLP.

23.2 Consent of BDO Seidman LLP, independent certified public accountants.

23.3 Consent of Deloitte Touche Tohmatsu, independent auditors.
</TABLE>

<PAGE>
Exhibit 10.15

EMPLOYMENT AGREEMENT
--------------------

THIS AGREEMENT ("Agreement"), dated as of __________ ____, 1997, between
TOYMAX INTERNATIONAL, INC., a Delaware corporation (the "Company"), and
ANDREW B. STEIN (the "Executive")

W I T N E S S E T H
- - - - - - - - - -

WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises, representations
and warranties set forth herein, and for other good and valuable consideration,
it is hereby agreed as follows:

1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts such employment, upon the terms and conditions
set forth herein.

2. TERM. Subject to the provisions of Section 10 hereof, the period of
the Executive's employment under this Agreement shall be from October 1, 1997
through September 30, 2000, as may be extended as hereinafter provided (the
"Term"). As of September 30, 2000 and each subsequent September 30, (September
30, 2000 and each subsequent September 30 hereinafter called a "Renewal Date"),
the Term shall be automatically extended by one additional year (i.e. to include
a period of 12 months commencing on the day after each Renewal Date) unless, at
least 60 days prior to any such Renewal Date, the Company shall deliver to the
Executive or the Executive shall deliver to the Company written notice that the
Term will not be further extended.

3. POSITION AND DUTIES.

(a) During the Term, the Executive shall serve as Managing Director
of Toymax (H.K.) Limited ("Limited") and shall have such duties consistent
with such office as from time to time may be prescribed by the Board of
Directors of the Company (the "Board").

(b) During the Term, the Executive shall perform and discharge the
duties that may be assigned to him by the Board from time to time in
accordance with this Agreement, and the Executive shall devote his best
talents, efforts and abilities to the performance of his duties hereunder.
Executive shall be required to spend such time traveling within the U.S.,
Europe, the Far East and elsewhere as is necessary to carry out his duties
and responsibilities hereunder during the Term.

<PAGE>

(c) During the Term, the Executive shall perform such duties on a
full-time basis and the Executive shall have no other employment and no other
outside business activities whatsoever; PROVIDED, HOWEVER, that the Executive
shall not be precluded from making passive investments which do not require the
devotion of any significant time or effort.

4. COMPENSATION.

(a) For the Executive's services hereunder, the Company shall pay the
Executive a minimum annual salary (as the same shall be increased from time to
time, the "Base Salary") of $185,000, payable in accordance with the customary
payroll practices of the Company.

(b) The Base Salary shall be increased by 5% (or such greater
percentage as the Board may determine) on January 1, 1999 and each subsequent
January 1 during the Term.

5. BONUSES.

(a) EXECUTIVE BONUS PLAN. During the Term, the Executive shall be
eligible to participate in the Company's Executive Bonus Plan (the "Bonus
Plan"), in accordance with the terms and conditions of such Plan, as they may
exist from time to time. Nothing herein shall preclude the Company from
amending the Bonus Plan from time to time or terminating the Bonus Plan, in
whole or in part, at any time.

6. OTHER BENEFITS. During the Term, the Company shall provide the
Executive with the following benefits:

(a) STOCK OPTION PLAN. The Executive shall be eligible to
participate in the Company's Stock Option Plan in accordance with the terms
and conditions thereof.

(b) MEDICAL, HEALTH, DENTAL AND LIFE INSURANCE BENEFITS. The
Company shall, at its own expense, provide the Executive and his eligible
dependents with the group medical, health, dental and life insurance coverage
provided by the Company generally to its employees. Nothing herein shall
prevent the Company from amending and/or terminating the coverages and/or
plans described in this Section 6(b), provided, however, that such amendment
and/or termination is applicable generally to the employees of the Company.

-2-
<PAGE>

(c) 401(K) PLAN. The Executive shall be entitled to participate in
the Company's 401(k) Plan in accordance with the terms and conditions of such
plan.

(d) OTHER BENEFITS. The Company shall make available to the
Executive any and all other employee or fringe benefits (in accordance with
their terms and conditions) which the Company may make available generally to
its other employees.

7. AUTOMOBILE ALLOWANCE. During the Term, the Company shall reimburse
the Executive for expenses, such as automobile lease or loan payments, in an
amount up to $600 per month, plus such amount(s) as may be required to reimburse
the Executive for expenses such as registration, insurance, repairs,
maintenance, license fees, gasoline and oil incurred by the Executive incident
to his use of an automobile in connection with his duties hereunder.

8. REIMBURSEMENT OF EXPENSES. During the Term, the Company shall pay or
reimburse the Executive for all reasonable travel, entertainment and other
business expenses actually incurred or paid by the Executive in the performance
of his duties hereunder upon presentation of expense statements and/or such
other supporting information as the Company may reasonably require of the
Executive.

9. VACATIONS. The Executive shall be entitled to no less than four weeks
of paid vacation during each full calendar year of the Term (and a pro rata
portion thereof for any portion of the Term that is less than a full calendar
year); provided that no single vacation may exceed two consecutive weeks in
duration. Unused vacation may not be carried over to successive years.

10. TERMINATION. The employment hereunder of the Executive may be
terminated prior to the expiration of the Term in the manner described in this
Section 10.

(a) TERMINATION BY THE COMPANY FOR GOOD CAUSE. The Company shall
have the right to terminate the employment of the Executive for Good Cause (as
such term is defined herein) by written notice to the Executive specifying the
particulars of the circumstances forming the basis for such Good Cause.

(b) TERMINATION UPON DEATH. The employment of the Executive
hereunder shall terminate immediately upon his death.

-3-
<PAGE>

(c) VOLUNTARY RESIGNATION BY THE EXECUTIVE. The Executive shall have
the right to voluntarily resign his employment hereunder (as such term is
defined herein) by written notice to the Company.

(d) TERMINATION BY THE COMPANY WITHOUT GOOD CAUSE. The Company shall
have the right to terminate the Executive's employment hereunder without Good
Cause by written notice to the Executive.

(e) TERMINATION DATE. The "Termination Date" is the date as of which
the Executive's employment with the Company terminates. Any notice of
termination given pursuant to the provisions of this Agreement shall specify the
Termination Date.

(f) CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:

(i) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or government (or political subdivision or agency thereof).

(ii) "Change of Control" with respect to the Company, means the
occurrence of any of the following, other than in connection with the initial
public offering of the Common Stock,(A) the acquisition directly or indirectly
(in one or more related transactions) by any Person (other than the Executive),
or two or more Persons (other than the Executive) acting as a group, of
beneficial ownership (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of more than 20% of the outstanding capital stock of the
Company entitled to vote for the election of directors ("Voting Shares");(B) the
merger or consolidation of the Company with one or more other corporations as a
result of which the holders of the outstanding Voting Shares of the Company
immediately before the merger hold less than 80% of the Voting Shares of the
surviving or resulting corporation;(C) the sale of all or substantially all of
the assets of the Company.

(iii) "Good Cause" shall exist if, and only if, the Executive
(A) wilfully or repeatedly fails in any material respect to perform his
obligations hereunder as provided herein, provided that such Good Cause shall
not exist unless the Company shall first have provided the Executive with
written notice specifying in reasonable detail the factors constituting such
material failure and such material failure shall not have been cured by the
Executive within 30 days after such notice or such longer period as may
reasonably be necessary to accomplish the cure; or (B) has been convicted of a
crime which constitutes a felony under applicable law or has entered a plea of
guilty or nolo contendere with respect thereto.

-4-
<PAGE>

11. OBLIGATIONS OF COMPANY ON TERMINATION. Notwithstanding anything in
this Agreement to the contrary, the Company's obligations on termination of the
Executive's employment shall be as described in this Section 11.

(a) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION WITHOUT
GOOD CAUSE. In the event that prior to the expiration of the Term, the
Company's terminates the Executive's employment, pursuant to Section 10(d),
without Good Cause, the Company shall provide the Executive with the following:

(i) AMOUNT OF SEVERANCE PAYMENT. Except as provided in Section
11(b) below the Company shall pay the Executive the "Severance Payments" equal
to the sum of the following:

(A)the continuation, for a period of twelve (12) months
following the Termination Date, of the Executive's Base Salary at the rate in
effect on the Termination Date, payable in accordance with the customary payroll
practices of the Company; and

(B)an immediate single lump sum cash payment of any Base
Salary, Bonus Plan bonuses, allowable vacation and unreimbursed expenses accrued
but unpaid as of the Termination Date.

(b) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION OF
EXECUTIVE'S EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the event that at any
time during the Term and following a Change of Control, the Company terminates
the Executive's employment without Good Cause, in lieu of the Severance Payments
to which the Executive is entitled under Section 11(a)(i) above, the Company
shall pay the Executive as follows:

(i) CHANGE OF CONTROL SEVERANCE PAYMENT. The Company shall
continue to pay to the Executive for a period of twenty-four (24) months
following the Termination Date the Executive's Base Salary at the rate in effect
on the Termination Date, payable in accordance with the customary payroll
practices of the Company, PLUS an immediate single lump sum cash payment of any
Base Salary, Bonus Plan bonuses, allowable vacation and unreimbursed expenses
accrued but unpaid as of the Termination Date.

(c) OBLIGATIONS OF THE COMPANY IN CASE OF TERMINATION FOR DEATH,
VOLUNTARY RESIGNATION OR GOOD CAUSE. Upon termination of the Executive's
employment upon death (pursuant to Section 10(b)), as a result of the voluntary
resignation of the Executive (pursuant to Section 10(c)) or for Good Cause
(pursuant to Section 10(a)), the Company shall have no payment or other
obligations hereunder to the Executive, except for the payment of any Base
Salary, Bonus Plan bonuses, allowable vacation and unreimbursed expenses accrued
but unpaid as of the date of such termination.

-5-
<PAGE>

12. SEVERABILITY. Should any provision of this Agreement be held, by a
court of competent jurisdiction, to be invalid or unenforceable, such invalidity
or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each other provision hereof shall be
enforceable and valid to the fullest extent permitted by law.

13. SUCCESSORS AND ASSIGNS.

(a) This Agreement and all rights under this Agreement are personal to
the Executive and shall not be assignable other than by will or the laws of
descent. All of the Executive's rights under the Agreement shall inure to the
benefit of his heirs, personal representatives, designees or other legal
representatives, as the case may be.

(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. Any Person succeeding to the
business of the Company by merger, purchase, consolidation or otherwise shall
assume by contract or operation of law the obligations of the Company under this
Agreement.

14. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without regard to the
conflicts of laws rules thereof.

15. NOTICES. All notices, requests and demands given to or made upon the
respective parties hereto shall be deemed to have been given or made three
business days after the date of mailing when mailed by registered or certified
mail, postage prepaid, or on the date of delivery if delivered by hand, or one
business day after the date of delivery by Federal Express or other reputable
overnight delivery service, addressed to the parties at their addresses set
forth below or to such other addresses furnished by notice given in accordance
with this Section 15: (a) if to the Company, to 125 E. Bethpage Road,
Plainview, New York 11803 and (b) if to the Executive, to 21 Andover Drive,
Syosset, N.Y. 11791.

16. WITHHOLDING. All payments required to be made by the Company to the
Executive under this Agreement shall be subject to withholding taxes, social
security and other payroll deductions in accordance with applicable law and the
Company's policies applicable to executive employees of the Company.

17. COMPLETE UNDERSTANDING. Except as expressly provided below, this
Agreement supersedes any prior contracts, understandings, discussions and
agreements relating to employment between the Executive and the Company,
including but not limited to that certain Employment Agreement between the
Executive and the Company dated as of March 18, 1993, and constitutes the
complete understanding between the parties with respect to the subject matter
hereof. No statement, representation, warranty or covenant has

-6-
<PAGE>

been made by either party with respect to the subject matter hereof except as
expressly set forth herein. Notwithstanding the foregoing or anything in this
Agreement to the contrary, the Employee Patent and Confidential Information
Agreement, by and between the Company and the Executive, shall remain in full
force and effect.

18. MODIFICATION; WAIVER.

(a) This Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and the Executive or in the case of a waiver, by the party against
whom the waiver is to be effective. Any such waiver shall be effective only to
the extent specifically set forth in such writing.

(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.

19. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.

20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto.

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<PAGE>

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name by one of its officers duly authorized to enter
into and execute this Agreement, and the Executive has manually signed his
name hereto, all as of the day and year first above written.

TOYMAX INC.

- ----------------------------- By:
Witness ------------------------------

- ----------------------------- ---------------------------------
Witness Andrew B. Stein

-8-

<PAGE>
EXHIBIT 16.1

October 14, 1997

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Ladies and Gentlemen:

We have read the statements made by Toymax International, Inc, a copy of
which is attached hereto, which we understand will be filed with the Securities
and Exchange Commission pursuant to Item 11(i) of Form S-1 and Item 304 of
Regulation S-K, under the heading "Auditor Change" in the Company's Registration
Statement on Form S-1, as amended (File No. 333-33409). We agree with the
statements in so far as they concern our firm in such Registration Statement and
agree to the filing of this letter as Exhibit 16 to the Registration Statement.

Very Truly Yours,
/s/ Deloitte Touche Tohmatsu
Deloitte Touche Tohmatsu
Hong Kong

<PAGE>

EXHIBIT 23.1

CONSENT OF COUNSEL

We hereby consent to the reference to our name in the Registration Statement
under the caption "Legal Matters."

BAER MARKS & UPHAM LLP

New York, New York
October 15, 1997

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Toymax International, Inc.

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated July 31, 1997, except for notes 1 and
12 which are as of , 1997, relating to the consolidated financial
statements of Toymax International, Inc. and subsidiaries, which is contained in
that Prospectus.

We also consent to the references to us under the captions "Selected
Consolidated Financial Data" and "Experts" in the Prospectus.

BDO SEIDMAN, LLP

Mitchel Field, New York
October 15, 1997

<PAGE>

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

Toymax International, Inc.

We consent to the use in this Registration Statement of Toymax International,
Inc., on Form S-1 of our report dated November 11, 1995, except Note 1 as to
which the date is _______________, 1997 appearing in the Prospectus, which is
part of this Registration Statement, and to the reference to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.

Deloitte Touche Tohmatsu
Hong Kong

October , 1997

The accompanying financial statements retroactively reflect the formation
of the Company and its combination with Toymax (H.K.) Limited and Toymax,
Inc., which is to be effected prior to the effective date of this
Registration Statement. The above Consent is in the form which will be
signed by Deloitte Touche tohmatsu upon consummation of such formation and
combination, which is described in Note 1 of Notes to Consolidated Financial
Statements, and assuming that from November 11, 1995, to the date of the
formation and combination, no other events shall have occurred that would
affect the accompanying financial statements and notes thereto.

Deloitte Touche Tohmatsu
Hong Kong
October 14, 1997