JANEX INTERNATIONAL INC, 10KSB, 2000-05-11

JANEX INTERNATIONAL INC
10KSB, 2000-05-11
GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 10549

FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to ______________

Commission File No. 0-17927

JANEX INTERNATIONAL, INC.
(Name of small business issuer in its charter)

COLORADO 84-1034251
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2999 N. 44TH STREET, SUITE 225 85018
PHOENIX, ARIZONA (Zip Code)
(Address of principal executive offices)

Issuer's telephone number, including area code: (602) 808-8765
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
--------------------------
(TITLE OF CLASS)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.

The issuer's net revenue for its most recent fiscal year was $283,995

The aggregate market value of the voting stock held by non-affiliates of the
issuer as of April 30, 2000 was $2,235,329

Number of registrant's shares of Common Stock outstanding as of April 1, 2000
was 9,698,750.

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PART I

ITEM 1. DESCRIPTION OF BUSINESS.

INTRODUCTION AND OVERVIEW

Janex International, Inc., formerly known as With Design in Mind
International, Inc. (the "Company"), was incorporated in Colorado on July 28,
1986. The Company is the parent corporation of With Design in Mind, a California
corporation ("WDIM") and wholly owned subsidiary that it acquired on August 19,
1988, Janex Corporation, a New Jersey corporation ("Janex") and wholly owned
subsidiary acquired on October 6, 1993, and Malibu Fun Stuffed, Inc., a
California corporation ("Malibu") and wholly owned subsidiary acquired on August
4, 1995. The Company is also the parent corporation of Pro Gains Company
Limited, a Hong Kong corporation ("Pro Gains") owned 50% by the Company and 50%
by Janex, and Malibu Fun Stuffed International Limited ("MFSI"), a Hong Kong
corporation owned 99% by Malibu and 1% by the Company. As used herein, the term
"the Company" refers to Janex International, Inc. and its wholly owned
subsidiaries, unless the context indicates otherwise.

Prior to October 6, 1993, the Company's business was conducted
primarily through WDIM. From October 6, 1993, to August 4, 1995, the Company's
business was conducted primarily through Janex and Pro Gains. Since August 4,
1995, the Company's business has been conducted primarily through Janex, Pro
Gains, Malibu and MFSI. The Company's principal place of business is at 2999 N.
44th Street, Suite 225, Phoenix, Arizona 85018. The Company's telephone number
is (602) 808-8765.

The business of Janex has historically focused on the manufacturing and
marketing of children's toys, coin and gumball banks, flashlights and
battery-operated toothbrushes marketed under the brand name Janex. Janex
incorporates licensed characters into most of its products, and sells its
products to mass merchant retailers, toy specialty stores and department stores
in the United States. Sales and manufacturing were historically facilitated
through Pro Gains, Janex's sister company in Hong Kong.

Malibu and MFSI (collectively referred to as the "Malibu Division")
operated in tandem similarly to Janex and Pro Gains (collectively referred to as
the "Janex Division"). Together they develop, manufacture and market toys and
novelty gift items, selling to mass merchant retailers, chain stores, and
specialty stores primarily in the United States. The product line of the Malibu
Division differs from that of the Janex Division in that most of the Malibu
Division products ("Malibu Products") do not incorporate licensed characters.
Further, the Company considers the Janex Division products ("Janex Products") to
be of a functional nature and not necessarily toys, while the Malibu Products
fall more clearly into the toy category.

The Company merged the operations of Janex and Malibu, and the
operations of Pro Gains and MFSI, during 1996. The Company has since continued
to maintain the Janex Product line and the Malibu Product line as two separate
product lines.

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ACQUISITIONS

During 1999, the Company entered into a global merger agreement that
involved the Company combining with several companies with complementary
products. The proposed merger transaction was not consummated and the respective
parties withdrew from the overall transaction.

The Company has moved during 2000 to establish relationships with and
acquire companies with suitable technologies and products to promote growth in
the Company's core business and revenues.

On January 19, 2000, the Company signed a non-binding letter of intent
to acquire 100% of the capital stock WebShare, Inc. ("WebShare"), a San
Diego-based company that provides lead generation services to the timeshare
vacation resort industry through its subsidiary, ResorTravel.com. The
transaction is subject to, among other things, the negotiation, execution and
delivery of definitive agreements.

On February 17, 2000, the Company signed a non-binding memorandum of
understanding to acquire 63.88% of the issued and outstanding common stock of
Trudy Corporation, a public company, from its major shareholders (reduced to 52%
to reflect sales by the majority stockholder). Trudy Corporation is a Norwalk,
Connecticut-based designer, manufacturer, and distributor of high quality
specialty publishing products, with a library of more than eighty books under
the Soundprints imprint. The transaction is subject to, among other things, the
negotiation, execution and delivery of definitive agreements.

On February 25, 2000, the Company entered into an Agreement, as
amended, with Futech Interactive Products, Inc., an Arizona company ("Futech"),
to acquire the name and rights to the Internet URL www.oKid.com and the related
website. This website had been under development for some time, and Company
management believes that it provides an ideal opportunity for the Company to
move directly into a visible Internet presence for business-to-consumer and
business-to-business selling. The transaction is subject to approval of the
board of directors of Futech and the Company.

On February 25, 2000, the Company entered into an Agreement, as
amended, with Futech to acquire all of the assets of Futech (other than the
assets related to the website www.oKid.com) and assume certain liabilities of
Futech. Futech's business consists of third-party publishing and proprietary
publishing products using the Futech interactive technology and patented
products. This technology relates primarily to printed audible signals, visual
circuitry and associated electrical components such as switches, batteries,
speakers and liquid crystal displays. The Company plans to apply the technology
to produce books and play boards that emit speech, music and sound effects or
other visual signals activated by switches in the surface of the product. The
Company plans continue to expand this proprietary product line selection and to
broaden the base of licenses for the use of Futech's products and technology.
The transaction is subject to board and stockholder approval of Futech and board
approval of the Company and stockholder approval of an increase in the number of
authorized but unissued shares of the Company's common stock.

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On March 24, 2000, the Company entered into a Merger Agreement, as
amended, with the DaMert Company ("DaMert"), a Berkeley, California-based
designer, manufacturer, and distributor of specialty toy products. This
transaction is subject to board and stockholder approval of the seller and
approval of the Company's board.

BUSINESS OF ISSUER

PRODUCTS

The Company's products are either created by the Company or licensed
from independent inventors. The Company is constantly seeking new ideas from
many sources and is frequently approached by inventors who propose that the
Company manufacture and market a product based on their designs or concepts. If
a design or concept is licensed by the Company, the Company will, in some cases,
make significant modifications for the purpose of enhancing the product's
features or eliminating unnecessary or costly aspects. Royalties are payable by
the Company with respect to products manufactured from designs or technologies
licensed by the Company from inventors or other third parties.

Most of the Janex Products incorporate licensed fantasy characters.
Once the decision has been made to include a specific product in the line, the
Janex Division will endeavor to obtain licenses to incorporate fantasy
characters into the product. Presently, the Janex Division has licenses to
utilize one or more trademarks and/or copyrights owned or controlled by, Saban
Merchandising, World Championship Wrestling, The Lyons Group, and Warner Bros.
Corporation. Although the basic underlying product may stay the same, generally
the product goes through a stage of customization to tailor that product design
to the fantasy character which is to be incorporated into it.

The Janex Products are targeted for sale by mass merchant retailers for
prices ranging from $3 to $30. Generally, the commercial life expectancy of any
given Janex Product is virtually unlimited in its generic state (i.e., without a
licensed character). For example, the predecessors of Janex marketed
battery-operated toothbrushes for over twenty years. However, the commercial
life span of any particular version of one of the Janex Products is directly
tied into the length of the license agreement for the fantasy character
incorporated into that product, and the popularity of that fantasy character
with consumers. Since most of the Janex Division license agreements are written
for a term of two years, and given that the popularity of most fantasy
characters is short lived, the Company estimates that the useful life of any
given version of the Janex Products will be no more than two years. Although the
Company intends to continue to market some version of every one of the Janex
Products it now sells for at least the next three years, the Company
nevertheless is actively developing new products that could incorporate fantasy
characters.

The Malibu Products do not normally incorporate licensed fantasy
characters. As a result, this division is not limited by licensor approval of
the products it develops and sells. Therefore, the product line reflects a more
opportunistic and diverse approach than the Janex Product line. The Malibu
Products are targeted for sale by mass merchant retailers, specialty retailers
and gift stores

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at prices ranging from $3 to $40. The commercial life span of the Malibu
Products could be long-lived, as is the case with many toys that are not tied
into a fashion or fad, but the Company expects the life span of any of the
Malibu Product to be no more than five years. Consequently, the Company is
constantly seeking new product concepts for the Malibu Product line, and
further, is continually redesigning and repacking existing products to improve
consumer appeal.

The Company intends to add several new products in 2000, subject to the
availability of working capital. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The focus of new product introductions will be on products of similar
characteristics to those already in the Company's product lines, i.e., similar
retail price levels, the capability of incorporating a fanciful licensed
character (for Janex Products), similar target age groups, functional or toys,
suitable for manufacture through existing or similar factories, and suitable for
distribution through existing distribution channels. The Company intends to
continue to include in its strategy for product line growth the possibility of
acquiring other companies, particularly where potential acquisition candidates
offer product line, manufacturing or marketing synergies.

The Company's products carry a 90-day limited warranty.

SERVICES

The Company is aware of the potential impact on marketing to children
and adults through the Internet. In order to position itself to take advantage
of all levels of electronic commerce available through this medium, the Company
is actively seeking to create alliances and ownership positions with existing
Internet companies, and to develop an Internet presence with an entertaining,
educational, high-traffic site which will become a leading and dominating
influence for children and teens. The Company will emphasize safety and quality
of content for accessing children, and will create a desirable site for repeat
visits by children, teens and adults. The products of the Company and its
partners will be promoted heavily on the site, and the Company expects to gain
substantial product recognition and revenue from this exposure and selling
opportunity, as well as an industry acceptance for innovation, quality and
service.

To commence the implementation of this strategy, as noted above, the
Company has entered into an agreement to acquire the Internet website
www.oKid.com. This website had been under development for some time, and
provides an ideal opportunity for the Company to move directly into a visible
Internet presence for business-to-consumer selling. The Company plans to
continue development of the site, including adding business-to-business
electronic-commerce capability. In addition, the Company plans to establish
joint ventures and co-brand services with complementary sites.

GOVERNMENT REGULATIONS

The Company is subject to the provisions of, among other laws, the
Federal Hazardous Substances Act and the Federal Consumer Products Safety Act.
Those laws empower the Consumer Products Safety Commission (the "CPSC") to
protect children from hazardous products. The CPSC

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has the authority to exclude from the market articles that are found to be
hazardous and can require a manufacturer to repurchase such products under
specific circumstances. Any such determination by the CPSC is subject to court
review. Similar laws exist in some states and cities in the United States and in
many jurisdictions throughout the world. The Company endeavors to comply with
all applicable regulations through a program of quality inspections and product
testing.

MARKETING, DISTRIBUTION AND CUSTOMERS

The Company sells its products nationwide to retailers, primarily
through a network of independent sales representative firms, including one owned
by a former president of the Company, which represents the Company's products to
one of its largest customers. See "Certain Relationships and Related
Transactions." The Company's products are displayed at two major consumer
product shows in January and February of each year, and at a number of smaller
specialty market shows throughout the year. Marketing activities for the
Company's product lines primarily target mass merchant retailers in the United
States and Canada.

The product marketing strategy for the Janex Product line is to market
the line as a selection of products for children that are primarily functional
in nature, may in specific circumstances be used as toys, incorporate licensed
characters where possible, are marketed under one brand name, Janex, and that
retail for prices between $3 and $30. The brand name provides an umbrella for
all products that helps both the sell-in of the product line to retailers, and
the sell-through to customers.

The product marketing strategy for the Malibu Product line is to market
a line of reasonably priced toys and novelty gift items that are different from
other products on the market, either through unique product design or innovative
packaging. The marketing strategy is opportunistic, meaning that the Malibu
Division will include in its product line almost any product for reasons of
advantageous entry costs and/or significant consumer demand, if the Company
believes the product can make a material contribution to corporate
profitability. Further, if profitable, the Malibu Products will be customized,
either in design or in packaging, to meet the needs of specific customers.

Customers purchase the Company's products on a letter of credit basis
FOB Hong Kong through the Company's Hong Kong subsidiaries, Pro Gains and MFSI.
Under these terms, title to the goods passes to the buyer at the point of origin
and, in most cases, the buyer is responsible for the costs of transportation.

Until 1996, domestic inventories were kept in a third-party contract
warehouse facility. Since then, the Company's manufacturing and processing is
currently handled in Hong Kong through Pro Gains and MFSI, Depending upon the
results of current negotiations with prospective strategic partners and
acquisitions, the Company may return to a policy of storage and distribution
from one or more domestic warehouse facilities. In each instance, the Company
will examine the relative efficiencies of such a storage and distribution model
prior to committing to the costs involved.

Letter of credit orders are processed through the Company's Hong Kong
subsidiaries, Pro Gains and MFSI . The Company's subsidiary companies in Hong
Kong have no employees; instead,

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they utilize a service agreement with Bondwealth, a Hong Kong-based services
company (also referred to in the industry as an agent) for all orders,
fulfillment, accounting and finance. Bondwealth provides the personnel and
facilities to accomplish accepting orders primarily from retailers based in the
United States and Canada, arranges for the manufacture of products to fill those
orders, delivers the products to the customer or the customer's representative
in Hong Kong, and then processes the necessary documentation to negotiate
payment for the goods by way of letters of credit or, in some instances, by
direct wire transfer from the customer.

With the Company's anticipated Internet presence, as currently planned
through the acquisition of www.oKid.com from Futech, the Company will enter into
a new set of marketing and sales opportunities, and will face a new area of
competition from established toy companies that also have or create a Web
presence. The Company intends to create strong brand awareness for the site, and
to generate a critical mass of user traffic to the site - that is, to use the
website as a major drawing medium and focus of attention to generate repeated
visits from both children and adults. The Company believes that its planned use
of the www.oKid.com site as an entertainment, information and education site
with strong drawing power and the potential for high repeat traffic should
establish it in a strong position versus other competitors. The Company will
then use this market position to facilitate business deals with key content
vendors and product suppliers, thereby directing both interest and commerce to
its own products and to products which it will re-sell or license for a presence
on the website.

The range of services the Company intends to supply via the website is
intended to create strong site allegiance, to attract high advertising and
related revenues, and to generate increased product awareness and demand for the
Company's current and future products. Introduction of new characters and
licensing, and their identification with a high-quality site such as OKID.COM,
should further differentiate the Company from its competitors.

MANUFACTURING

Most of the Company's products are manufactured to the Company's
specifications by manufacturers based in Hong Kong. The Company believes that
teaming contract manufacturers with Company employees yields cost savings,
maximizes the design resources of the Company and shortens the new product
introduction cycle. During the design stage, Company employees work closely with
employees of the manufacturers, and also travel to the manufacturers'
facilities, in order to accomplish the Company's design goals. Company employees
also travel to the manufacturing facilities for the purpose of inspecting the
manufacturing process and verifying the effectiveness of quality control and
assurance programs. Products are shipped directly from the manufacturer to the
customer.

Molds and tooling for products manufactured off-shore are procured and
owned by Pro Gains or MFSI. Pro Gains or MFSI, through its agent, initiates all
orders for product with the manufacturer, and pays the manufacturer, through its
agent, subsequent to the delivery of the product in accordance with payment
terms agreed to between the Company and the manufacturer. All products
manufactured in the Orient are manufactured specifically for a customer order.
From time to time, the Company may have on hand a supply of specific components
for incorporation into finished

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products, if those components are difficult to procure, have long lead times on
delivery, or have minimum order quantities associated therewith.

PRODUCT DESIGN AND SELECTION

For the Janex Product line, the Company seeks to identify functional
products for children that will provide a benefit for both the parent and the
child, which are suited to the incorporation of a licensed fantasy character,
and which are not already being manufactured and marketed effectively by other
companies.

Traditionally, mothers purchase the majority of all children's
products. Therefore, the primary target audience for the product line is mothers
of boys and girls between the ages of three and ten. The Company believes that
one of the greatest needs of any parent is help in "managing" their children.
This would include such activities as help in keeping dolls and other playthings
organized, brushing teeth, teaching children about money, and getting children
to do their chores. The Janex Products are designed to be functional fun
products that would help a parent "manage" their children and at the same time
make routine activities and chores fun and/or easier for the child to perform.

For the Malibu Product line, the Company seeks to identify toys for
which a demand exists, and that can be made more attractive or fun by
incorporating a unique design or by packaging the product in a manner that is
different from other similar products on the market. Since the Company does not
have the financial strength to support the Malibu Products with television
advertising, the product design and unique packaging are designed to capture the
attention of consumers at the shelf level.

New products are initially selected based upon what management
believes, in its experience, will be successful. However, in order to seek to
reduce the expense of producing a product that may not sell, the Company may
utilize the services of professional market research companies to perform
product testings and to determine product viability. In the product selection
and design process input is also solicited from buyers at specific retailers,
and from sales representatives. Feedback from these market research techniques
is also used in the development of product packaging and in the establishment of
product price levels. In addition, for the Janex Products, since most
incorporate licensed characters, the licensor's input into product and packaging
design is always solicited, and in some cases may even be required by the terms
and conditions of the license agreement.

While the Company has been the sole originator of several of its
products, it actively seeks innovative and unusual product concepts from third
parties. Management attempts to be open and accessible to inventors who may have
new product ideas. The Company receives many unsolicited proposals from
inventors seeking to interest the Company in licensing their product. Company
management frequently meets with inventors to review the various proposed
products. If and when the Company determines that it is willing to license a
product, it seeks to obtain the exclusive marketing and manufacturing rights for
the duration of the patent, if the product is patentable, or other suitably
lengthy period if not patentable.

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Historically, the Company has not incurred any significant costs in
connection with research and development and does not expect to do so in the
foreseeable future. The Company keeps the direct investment in research and
development on new products to a minimum by entering into agreements with
product researchers/inventors providing for ongoing royalty participation should
a given product be brought to market. Once the decision has been made to include
a product in one of the Company's product lines, the Company typically incurs
start-up costs in the range of $5,000 to $20,000 for each version of that
product introduced. Such costs include producing one or more prototypes of a
product, obtaining licensor approval (if it is licensed) on concept, artwork and
sculpting, and acquiring any required molds and tooling for production.

For the Janex Product line, the Company continually searches for new
characters to license. A new fantasy character can be used on new products as
well as extend the life of an existing product. The Company attends trade shows,
subscribes to industry publications, and utilizes the services of licensing
consultants to ensure that, when new licenses become available, the Company
receives due consideration from the licensor as a potential licensing candidate.
When new licenses are acquired, the licensors generally specify exactly what
products the licensed characters can be incorporated into, the territory in
which products incorporating those licenses can be sold, the royalty rate
payable on sales of products, the royalty advance (if any), and the royalty
guarantee (if any). The amount of the royalty rate, advance and guarantee
required under any given license agreement is generally a function of the
credibility of the owner of the licensed property, and the popularity of the
licensed character with the target market.

For the Janex Products, the Company seeks licenses that may open up
additional target market groups. As an example, the Little Mermaid character on
a battery-operated toothbrush is a suitable product for a four-year-old girl.
That same battery operated toothbrush with a Batman character on it would be a
suitable product for a seven-year-old boy. As a result, the Company endeavors as
part of its product development program to ensure that it has spread its
available license acquisition funds across a range of licenses, rather than
investing heavily in only one or two licenses.

COMPETITION

The market for both toys and functional children's products is served
by many manufacturers, both foreign and domestic. Many products are available
over a broad price range, and the market is competitive, includes numerous small
manufacturers, and is dominated by three industry giants. The Company classifies
the competition for its product lines three categories, as follows: (1) toy and
novelty gift manufacturers, (2) functional product manufacturers, and (3) direct
functional children's product competitors.

Toy and novelty gift manufacturers are companies that are primarily in
the business of manufacturing and marketing toys. Functional product
manufacturers are companies which are primarily in the business of manufacturing
and marketing a specific type, or group, of functional products, such as
furniture, lighting, or clocks, but which may include in their product line
specific functional children's products. Direct functional children's product
competitors are companies that

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manufacture and market functional children's products as their company's primary
business. All companies that fall into these three categories compete with the
Company's product lines.

There is considerable competition for the consumer's dollar in the
Company's target markets. However, the Janex Products are differentiated from
those of the competition by relying heavily on the use of licensed characters.
The Malibu Products are differentiated from those of the competition by relying
on unique product designs and unique packaging. Although the Company attempts to
protect its products with patents and/or trademarks when available, successful
products in any product classification are always susceptible to imitation or
"knock-off." The Company seeks to maintain a competitive advantage by continuing
the introduction of new products and/or product enhancements over time, by
producing high quality products, and by pursuing licenses for a broad range of
children's characters.

For the Janex Products, given the reliance on licensed characters to
differentiate products and to drive sales, competition must also be viewed from
the perspective of the competition between companies for licenses. Most license
agreements are non-exclusive, and limited in duration. Within the industry, two
years is the standard term for most license agreements. When licenses become
available, or when they are up for renewal, the licensor may give the license to
the company which is willing to offer the highest royalty rate, advance royalty
amount, or royalty guarantee. The Company ranks as a very small player in the
industry, and is extremely vulnerable in the competition for licenses, should
financial strength become a primary decision making criterion of the licensor.

Licensors do not normally license multiple manufacturers for the same
product in the same territory, although technically under the terms of many
license agreements they could. This option is generally reserved by the licensor
as a method of dealing with licensees that do not perform. In addition,
licensors tend not to auction licenses, where the license would go to the
highest bidder. Instead most licensors, particularly those concerned with the
longevity of their characters, base the license granting decision more on the
ability of the manufacturer to make the products, to sell the products, to
manufacture quality products that enhance the value of the license and the
licensor's reputation, to account accurately for the sales of products, and to
pay royalties due on a timely basis. Also, most reputable licensors recognize
the value of the relationship between the licensee and their customers, and
realize the potential disruption that could occur by precipitously replacing
licensees.

The Company believes its relationship with its major licensors to be
excellent, and believes that it will continue to be able to obtain from its
existing licensors, and new licensors, the necessary licenses to be competitive
in the marketplace. However, there is no guarantee that the Company will be able
to obtain the licenses necessary to be competitive, and failure to obtain those
licenses would adversely affect the sales of Janex Products. The respective
licensors in each instance have registered, own and/or control the trademark,
registered trademarks and/or copyright rights to the characters licensed and the
characters, likenesses thereof, names, pictures, drawings and any other
associations with those characters are used by the Company strictly under
license from the respective licensor.

Since the Janex Division relies upon licensed characters as the primary
method of differentiating its products from those of other companies, revenues
tend to be a function of the

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general popularity of the characters licensed by the Company vis-a-vis those
characters licensed to competing companies. As a result, more traditional
indicators of revenue stability such as the state of the economy, market share,
financial strength and/or weakness of the company and historical growth rate
offer limited insight as tools to predict future performance. Thus, the
strength, or weakness, of the licenses held by the Company can be expected to a
have a major influence on revenues and profitability, and over time it would not
be unexpected for the Company to experience both significant upward and downward
fluctuations in sales. These upward and downward swings in revenue associated
with "fad" or "hit" licenses that generate tremendous sales volumes for short
periods make the business of selling products that incorporate licensed fantasy
characters extremely volatile, in comparison to businesses that do not sell
products that incorporate licensed fantasy characters, and that do not sell
products that are considered fads.

With the Company's anticipated Internet presence, as currently planned
through the acquisition of www.oKid.com from Futech, the Company will enter into
a new set of marketing and sales opportunities, and will face a new area of
competition from established toy companies that also have or create a Web
presence. The Company believes that its planned use of the www.oKid.com site as
an entertainment, information and education site with strong drawing power and
the potential for high repeat traffic should establish it in a strong position
versus other competitors. The range of services to be supplied via the website
is intended to create strong site allegiance, to attract high advertising and
related revenues, and to generate increased product awareness and demand for the
Company's current and future products. Introduction of new characters and
licensing, and their identification with a high-quality site such as oKid.com,
will further differentiate the Company from its competitors.

PATENTS, TRADEMARKS AND LICENSES

The Company currently holds one patent.

For those products that can be patented, the Company normally takes the
steps necessary to do so. However, the Company recognizes that patents are not
totally effective in prohibiting competitors from producing similar products
that could compete with those of the Company. Therefore, the Company does not
rely heavily upon patent protection to maintain its competitive position. The
Company believes that its growth, competitive position and success are dependent
upon its right to use specific licensed characters and trademarks, its ability
to develop and design unique products and packaging, its relationships with
customers, and its relationship with contract manufacturers.

The Company has entered into a number of license agreements for the use
of licensed fantasy characters on its products. These license agreements
typically run for two years, require a payment of royalties on sales, require
royalty advances, and in some instances have guaranteed royalties. The following
is a list of the current licensors to the Company and the characters licensed

- Warner Bros. Corporation for Looney Tunes
- Leisure Concepts for World Championship Wrestling

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- Lyons Group for Barney

In addition, the Company has entered into a number of license
agreements for the use of product designs and for the rights to use specific
trademarks. These license agreements typically run two to five years, require
payment of royalties on sales, and require royalty advances.

EMPLOYEES

As of December 31, 1999, the Company had two employees, one of whom was
full-time, and one of whom was part-time. One was the chief executive, and the
other was engaged in marketing and product development. As of March 31, 2000,
the Company had three full-time employees. The Company anticipates that, subject
to completion of currently-proposed mergers and acquisitions, the number of
full-time employees will rise significantly to meet the Company's increased
operational demands.

The Company has never experienced a work stoppage and the Company
believes that relations with its employees are good. None of the Company's
employees are covered by collective bargaining agreements.

ITEM 2. DESCRIPTION OF PROPERTY.

As of December 11, 1998, the Company moved its headquarters to Phoenix,
Arizona, and is presently sharing office space on a month-to-month basis with
Futech Interactive Products, Inc. Upon completion of the planned Futech
acquisition, the Company will assume the lease to this property. The lease
expires on August 31, 2000, and has an annual lease expense of approximately
$300,000.

Upon the completion of the planned Futech acquisition, the Company will
assume the lease for a distribution facility in Waukesha, Wisconsin. This
property consists of approximately 64,000 square feet and the lease expires on
June 30, 2002. Annual lease expense for the facility is approximately $348,000.

The Company currently leases approximately 4,700 square feet of office
space in Woodland Hills, California (the "Office"). The lease expires on
December 31, 2000. The Company subleases the facility.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, the Company may become a party to legal proceedings
which arise as part of the normal course of its business operations. Unless such
proceedings represent a material impact on the Company's business or operations,
the Company will deal with them as part of its normal operations.

- 12 -

<PAGE>

The Company is not currently party to any legal proceedings.

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

There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year ended December 31, 1999
through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

PRICE RANGE OF OUTSTANDING COMMON STOCK

On October 16, 1989, the Common Stock began trading on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") and was
quoted on NASDAQ until July 17, 1997, when it was delisted due to the Company's
failure to meet the minimum capital and surplus requirements for continued
listing. The Company is now traded on the OTC Bulletin Board. The following
table sets forth the high and low bid prices for each fiscal quarter from
January 1, 1998, through December 31, 1999, as reported by the National
Association of Securities Dealers and as recorded on www.cnbc.com. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and do not necessarily represent actual transactions.

YEAR ENDED DECEMBER 31, 1999 HIGH LOW
---------------------------- ---- ---
<S> <C> <C>
First Quarter $ .35 $ .17
Second Quarter $ .27 $ .16
Third Quarter $ .19 $ .08
Fourth Quarter $ .21 $ .06

YEAR ENDED DECEMBER 31, 1998 HIGH LOW
---------------------------- ---- ---
First Quarter $ .52 $ .16
Second Quarter $ .53 $ .19
Third Quarter $ .28 $ .06
Fourth Quarter $ .39 $ .12
</TABLE>

The closing price on the OTC Bulletin Board on March 31, 2000 was $1.06
per share of Common Stock. As of March 31, 2000, the Company had approximately
770 shareholders of record.

RECENT SALES OF UNREGISTERED SECURITIES

Not applicable.

- 13 -

<PAGE>

DIVIDEND POLICY

The Company has not paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company anticipates
that all earnings, if any, in the foreseeable future, will be retained for
development of the Company's business.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto appearing
elsewhere in this Form 10-KSB.

OVERVIEW

From inception (July 1986) to September 1992, the Company developed and
marketed a variety of consumer products for sale by retailers of gift, novelty
and educational items throughout the United States. In October 1993 the Company
acquired MJL Marketing, Inc. (now known as Janex Corporation) and its affiliate
Pro Gains, a successful manufacturer and distributor of children's products
which utilized fanciful licensed characters on their products.

With the acquisition of Janex in October 1993, the Company ceased
marketing the Great Stuff, Deco Disc and MicroTheatre product lines and focused
entirely on marketing the Janex products. See "Business of Issuer--Products."

On August 4, 1995, the Company acquired Malibu and its Hong Kong
affiliate MFSI. See "Liquidity and Capital Resources". The two acquired
companies operate in tandem, similarly to Janex and Pro Gains. Together they
develop, manufacture (through subcontractors) and market toys and novelty gift
items, selling primarily in the United States to mass merchant retailers, chain
stores, and specialty stores, FOB the Company's Hong Kong agent.

By 1999, it was apparent to Company management that the level of sales
were not sufficient to sustain the Company as a going concern without
significant growth in revenue and profitability, and that there would need to be
a substantial increase in the Company's business volume and product availability
to support future growth.

Accordingly, during 1999 Company management began a process of seeking
significant acquisitions of, and new relationships with, several companies with
complementary products or functional services. The Company entered into a global
merger agreement that involved the Company combining with several companies. The
proposed merger transaction was not consummated and the parties withdrew from
the overall transaction. The Company believes that the

- 14 -

<PAGE>

focus of the Company's management on the acquisitions had an adverse impact upon
sales performance.

Despite the adverse impact of the abandoned transaction in 1999,
Company management remains convinced that the Company must pursue growth through
acquisitions, mergers, and strategic partnerships, particularly with companies
with complementary products and services and with established revenues. In
addition, management believes that the establishment of a recognized and
attractive presence on the Internet is necessary to expand the market for the
Company's products and to position the Company as a major supplier of children's
entertainment and educational toys and services.

As part of this plan for the introduction of additional products and
for the preparation for an effective Internet presence for the Company, the
Company moved during early 2000 to acquire and establish relationships with
companies with suitable technologies and products with the intention of
enlarging the Company's product base, enhancing materially the Company's
distribution capability, and promoting growth in the Company's core business and
revenues.

On January 19, 2000, the Company signed a non-binding letter of intent
to acquire WebShare, Inc. ("WebShare"), a San Diego-based company that provides
lead generation services to the timeshare vacation resort industry through its
subsidiary ResorTravel.com. The transaction is subject to, among other things,
the negotiations, execution and delivery of definitive agreements.

On February 17, 2000, the Company signed a memorandum of understanding
to acquire approximately 63.88% of the common stock of Trudy Corporation, a
public company, from its major shareholders (reduced to 52% to reflect sales by
the majority stockholder). Trudy Corporation is a Norwalk, Connecticut-based
designer, manufacturer, and distributor of high quality specialty publishing
products, with a library of more than eighty books under the Soundprints
imprint. The transaction is subject to, among other things, board approval and
the negotiation, execution and delivery of definitive agreements.

On February 25, 2000, the Company entered into an Agreement, as
amended, with Futech Interactive Products, Inc. ("Futech"), an Arizona company,
to acquire the name and rights to the Internet URL www.oKid.com and the related
website. This website had been under development by Futech for some time, and
Company management believes that it provides an ideal opportunity for the
Company to move directly into a visible Internet presence for
business-to-consumer and business-to-business selling. The transaction is
subject to approval of the board of directors of Futech and the Company.

- 15 -

<PAGE>

and sound effects or other visual signals activated by switches in the surface
of the product. The Company plans continue to expand this proprietary product
line selection and to broaden the base of licenses for the use of Futech's
products and technology. The transaction is subject to board and stockholder
approval of Futech and board approval of the Company and stockholder approval of
an increase in the number of authorized but unissued shares of the Company's
common stock.

There can be no assurance that any of the foregoing acquisitions will
be consummated.

On March 7, 2000, the Company entered into a non-exclusive licensing
agreement with Fundex Games, Ltd. for the application of Janex's licensed
game-board technology to a variety of present and future Fundex products. Under
the agreement, Janex will receive royalties to the extent of net profits, as
defined, from the sale of Fundex products incorporating Janex's technology and
Janex acquires reciprocal rights for the sale of Fundex products. The License
Agreement expires December 31, 2000.

MATERIAL CHANGES IN RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998

Sales for the year ended December 31, 1999 were $283,995, as compared
to $3,117,599 for the year ended December 31, 1998, a decrease of $2,833,604, or
91%. The net loss for the year ended December 31, 1999 was $1,470,317, or $0.13
per share, compared to a net loss of $1,283,340, or $0.13 per share, for the
year ended December 31, 1998.

Sales during the year ended December 31,1999 from the Malibu product
line were $110,026, or 45% of total sales. The remaining sales of $173,969, or
61.3% of total sales, came from the Janex product lines of Sesame Street
licensed characters, bathtub basketballs, and World Championship Wrestling
licensed products.

The primary reason for the substantial downturn in sales during the
year ended December 31, 1999, compared to the year ended December 31, 1998, was
that the Company sustained a substantial reduction in orders from traditional
customers, due to their need to reduce excess inventory of existing
character-based products, and the shortage of compelling new characters
available for licensing during the period. Shortage of available operating
capital throughout the period also made the procurement of character licenses
difficult.

In addition, during much of the 1999 period, substantial Company
management resources were devoted to a planned merger with several complementary
companies. The proposed merger transaction was not consummated and the parties
withdrew from the overall transaction. The Company believes that the focus of
the Company's management on the acquisitions had an adverse

- 16 -

<PAGE>

impact upon sales performance. Company management has since taken steps to
redirect its sales efforts, to identify new licensing opportunities, and to add
new and innovative products.

Gross profit was a negative of $257,346 for the year ended December 31,
1999, as compared to a positive gross profit of $1,103,003, or 35.4% of sales,
for the year ended December 31, 1998. Gross profit is equal to revenues less the
cost of goods sold and royalties paid. The decline in gross profit as a
percentage of sales was primarily due to: (1) the transfer of approximately
$115,000 of inventory as compensation to one of the companies with which the
Company was seeking to negotiate a merger transaction, (2) significant
incremental air freight expenses incurred to meet shipment commitments on late
product deliveries, and (3) payment of minimum royalties.

Royalty expense was $229,833, or 81% of sales, for the year ended
December 31, 1999, as compared to royalties of $380,969, or 12.2% of sales, for
the year ended December 31, 1998. Although there was a material reduction in
sales during 1999, there was a continuing charge to operations required to meet
royalty guarantees on contracts under which insufficient product sales were
generated to meet minimum guarantees through December 31, 1999.

Selling, general and administrative ("SG&A") expenses were $730,346, or
257.2% of sales, for the year ended December 31, 1999, as compared to
$1,755,882, or 56.3% of sales, for the year ended December 31, 1998. SG&A
expenses are comprised of fixed overhead costs and variable selling costs.
Company management has been active in seeking to reduce these costs throughout
the period. However, SG&A increased as a percentage of sales due to the Company
inability to reduce its fixed costs during a period of significant decrease in
sales volume in 1999 over that of 1998, even with a decrease in both fixed and
variable overhead costs.

Based on the number of stock options granted to date in 2000, the
Company expects that it will recognize stock-based compensation expense during
the year ending December 31, 2000, in the amount of approximately $2,069,350 for
stock options granted during the period January 1 to March 31, 2000.

Depreciation and amortization expense for the year ended December 31,
1999 was $335,471, as compared to $376,283, for the year ended December 31,
1998, a decrease of 40,812. Current year depreciation and amortization includes
a charge of $118,000 which relates to asset impairment as a result of the
Company's declining revenue.

Interest expense for the year ended December 31, 1999 was $25,230, or
10.3% of sales, as compared to $260,533, or 8.3% of sales, for the year ended
December 31, 1998. The decrease was primarily attributable to a substantial
reduction in the use of the Company's credit facilities to finance operations
during peak business periods, as a result of the overall decrease in sales
during the year.

During 1999, the Company recorded a provision for income tax expense of
$6,925, compared to a similar provision of $5,746 for 1998. The Company does not
expect there to be any federal income tax liability for 1999, as the Company
suffered a net loss. The income tax expense relates to income tax paid primarily
on state tax returns.

- 17 -

<PAGE>

SEASONALITY AND QUARTERLY FLUCTUATIONS

The Company's business normally follows closely that of other companies
with children oriented product lines, which tend to generate the greater part of
both sales and profits during the Christmas selling season. The Company expects
that sales will be higher in the third and fourth quarters of the year, as
compared to the first and second quarters of the year, with over 50% of shipping
expected to take place between April and September. However, with the
significant shift of sales relating to the Wet Pet line, in fact approximately
50% of shipping takes place between January and March.

LIQUIDITY AND CAPITAL RESOURCES

We are currently experiencing a severe working capital deficiency and
are incurring significant losses. As of December 31, 1999, our working capital
deficiency was approximately $3,322,757. For the year ended December 31, 1999,
we incurred net losses of approximately $1,470,317. At this time, we are not
generating any significant revenue, but are incurring substantial costs and
expenses in connection with our business operations. For the year ended December
31, 1999, our operations and investing activities used approximately $1,067,547.
In addition, for the same period, our financing activities generated
approximately $1,009,055, consisting primarily of increased indebtedness to a
related party that we have used to pay our operating expenses.

As of March 31, 2000, our cash balances were approximately $8,711, and
we had a working capital deficiency of approximately $3,500,000, which includes
indebtedness to related parties of approximately $1,800,000. Based on current
cash on hand, we need to raise additional funds immediately. We expect to remedy
the working capital deficit by raising additional capital in the form of either
debt or equity financings. We cannot assure you that we will raise sufficient
funds to remedy the working capital deficit or fund our operations. If we are
unable to raise sufficient capital to remedy the working capital deficit and
fund our continuing operations, our business will be adversely affected and we
will not be able to continue as a going concern.

As of March 31, 2000, subject to the availability of operating capital
and assuming the completion of the planned acquisitions discussed under
"Description of Business - Acquisitions", we plan to make capital expenditures
over the next twelve months of up to $1,500,000 to fund new product development,
including initial licensing charges and tooling. In addition, if we complete the
acquisition of www.OKID.COM, we also anticipate that we will expend
approximately $3,300,000 for Web site development and marketing over the next
twelve months. If we complete our planned acquisitions, during the next twelve
months we expect there to be a significant increase in the number of our
employees.

- 18 -

<PAGE>

Our auditor's report indicates that certain factors raise substantial
doubt about our ability to continue as a going concern. Our auditors issued a
going concern opinion because we:

- - have experienced a significant decline in revenues;
- - have negative net worth and a working capital deficiency; and
- - have recurring losses.

Based upon our current budget and business planning, we believe that we
will need approximately $10 million of additional capital to fund our planned
operations over the next twelve months and that we will need to raise or
generate such amount during the next twelve months to eliminate our auditors'
going concern opinion. We cannot assure you that we will be able to generate
internally or raise sufficient funds to continue our operations, or that our
auditors will not issue another going concern opinion.

NEW ACCOUNTING POLICIES

The Financial Accounting Standards Board issued several pronouncements,
of such pronouncements only two may have future applicability. Statement of
Financial Accounting Standards (SFAS) Nos. 132 "Employers Disclosures about
Pensions and other Postretirement Benefits," effective June 15, 2000, and 137
"Accounting for Derivative Instruments and Hedging Activities," effective June
15, 2000. The current financial statements would not have been impacted by these
pronouncements as the Company has not participated in derivative transactions
and only has a 401k plan.

INFLATION

Management believes that inflation has not had a significant impact on
the Company's costs and profits during the past two years.

- 19 -

<PAGE>

ITEM 7. FINANCIAL STATEMENTS.

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'

Report of Abrams and Company, P.C.

Report of Ernst & Young, LLP

CONSOLIDATED FINANCIAL STATEMENTS:

Balance Sheet as of December 31, 1999

Statements of Operations for the years ended
December 31, 1998 and December 31, 1999

Statement of Changes in Stockholders' Deficit for the years
ended December 31, 1998 and December 31, 1999

Statements of Cash Flows for the years ended
December 31, 1998 and December 31, 1999

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

- 20 -

<PAGE>

Report of Abrams and Company, P. C. Independent Auditors

The Board of Directors and Shareholders
Janex International, Inc.

We have audited the accompanying consolidated balance sheet of Janex
International, Inc. and subsidiaries as of December 31, 1999 and the related
consolidated statements of operations, changes in shareholders' deficit, and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Janex
International, Inc. and subsidiaries as of December 31, 1999 and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
negative net worth, negative working capital and has continued to experience a
significant decline in revenues which raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding those matters also
are described in Notes 1 and 15 C. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Abrams and Company, P.C.

Melville, New York
April 28, 2000

- 21 -

<PAGE>

Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Shareholders
Janex International, Inc.

We have audited the accompanying consolidated statements of
operations, shareholders' deficit, and cash flows of Janex International,
Inc. and subsidiaries for the year ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated results of
operations and cash flows of Janex International, Inc. for the year ended
December 31, 1998 in conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the
Company's recurring losses and net capital deficiency raise substantial doubt
about its ability to continue as a going concern. Management's plans as to those
matters are also described in Note 1. The 1998 consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

/s/ ERNST & YOUNG LLP

Phoenix, Arizona
April 7, 1999

- 22 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

December 31, 1999

ASSETS (ALL COLLATERALIZED)

<TABLE>
<S> <C>
Current assets
Cash $ 3,920
Accounts receivable (less allowance for
doubtful accounts of $22,942) 55,978
Prepaid royalties 79,245
Other current assets 5,061
------------
Total current assets 144,204
------------
Property and equipment (net) 3,025
Intangible assets (net) 270,662
------------
TOTAL ASSETS $ 417,891
============

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities
Note payable - bank $ 256,943
Due to Futech Interactive Products, Inc. 1,630,192
Accounts payable 1,033,671
Accrued expenses 546,155
------------
Total current liabilities 3,466,961
------------

TOTAL LIABILITIES 3,466,961
------------
Commitments and contingencies

Shareholders' deficit
Class A convertible preferred stock, no par
value; convertible into one share of common stock
for each share of preferred stock
Authorized shares - 5,000,000; Issued and
outstanding 5,000,000 shares 569,022
Common stock, no par value
Authorized shares - 20,000,000; Issued and
outstanding 18,128,750 shares
12,803,507
Additional paid in capital 554,517
Accumulated deficit (16,976,116)
------------
TOTAL SHAREHOLDERS' DEFICIT (3,049,070)
------------

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 417,891
============
</TABLE>

See accompanying summary of accounting policies
and notes to financial statements

- 23 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1999
---- ----
<S> <C> <C>
Net sales $ 3,117,599 $ 283,995
Cost of sales 1,633,627 311,508
Royalty expense 380,969 229,833
------------ ------------
2,014,596 541,341
------------ ------------
Gross profit (loss) 1,103,003 (257,346)

Operating expenses
Selling, general and administrative 1,755,882 730,346
Depreciation and amortization 376,283 453,322
------------ ------------

Loss from operations (1,029,162) (1,441,014)
------------ ------------

Other income (expenses)
Interest income 8,833 1,214
Interest expense (260,533) (25,230)
Other income 3,268 1,638
------------ ------------

Loss before income taxes (1,277,594) (1,463,392)
------------ ------------

Provision for income taxes (5,746) (6,925)
------------ ------------

NET LOSS $ (1,283,340) $ (1,470,317)
============ ============

BASIC AND DILUTED NET LOSS PER SHARE $ (0.13) $ (0.08)
============ ============

WEIGHTED AVERAGE OF NUMBER OF SHARES OUTSTANDING 10,216,070 18,098,832
============ ============
</TABLE>

See accompanying summary of accounting policies
and notes to financial statements

- 24 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE TWO YEARS ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
CLASS A CONVERTIBLE ADDITIONAL TOTAL
COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
----------- ----------- ----------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1997 7,989,028 $ 11,618,816 $ $ 554,517 $(14,222,459) $ (2,049,126)

Sale of common stock 1,923,077 250,000 250,000
Common stock issued
for services 175,000 22,750 22,750
Stock issued upon
conversion of
notes payable 8,011,645 911,761 5,000,000 569,022 1,480,783
Net loss (1,283,340) (1,283,340)
---------- ------------ ----------- ------------ ------------ ----------- ------------

Balance at December
31, 1998 18,098,750 12,803,327 5,000,000 569,022 554,517 (15,505,799) (1,578,933)

Common stock issued
for services 30,000 180 180
Net loss (1,470,317) (1,470,317) (1,470,317)
---------- ------------ ----------- ------------ ------------ ----------- ------------
BALANCE AT
DECEMBER 31, 1999 18,128,750 $ 12,803,507 5,000,000 $ 569,022 $ 554,517 (16,976,116) $ (3,049,070)
========== ============ =========== ============ ============ =========== ============
</TABLE>

See accompanying summary of accounting policies
and notes to financial statements

- 25 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities

Net loss $(1,283,340) $(1,470,317)

Adjustments to reconcile net loss to net cash used by
operating activities
Depreciation 218,659 191,822
Amortization of intangible assets 157,624 261,500
Amortization of loan fees 116,863
Provision for doubtful accounts 22,561 13,711
Write off of inventory 299,000 19,144
Unrealized foreign exchange losses/(gains) 3,268 (1,368)
Issuance of common stock for services 22,750 180

Changes in current assets and current liabilities
Accounts receivable 40,555 94,389
Inventories (256,911) 111,954
Prepaid expenses and other current assets (4,107) 885
Accounts payable (83,010) 430,956
Accrued expenses and other 80,161 (657,122)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (666,007) (1,004,266)
----------- -----------

Cash flows from investing activities
(Purchases) disposal of property and equipment (Net)
(81,567) 63,256
Product development costs (114,464) (126,537)
Decrease in certificate of deposit 100,000
-----------
NET CASH USED BY INVESTING ACTIVITIES (96,031) (63,281)
----------- -----------

Cash flows from financing activities
Advances from Futech Interactive Products, Inc. 621,080 1,009,112
Proceeds from line of credit 257,000
Net payments on notes payable (219,189) (57)
Payments on loans payable - agent (249,113)
Proceeds from issuance of common stock 250,000
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 659,778 1,009,055
----------- -----------

Net change in cash and cash equivalents (102,260) (58,492)

Cash and cash equivalents, beginning of year 164,672 62,412
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 62,412 $ 3,920
=========== ===========

Supplemental cash flow information:

Cash paid for interest $ 5,806 $ 25,127
=========== ===========
Cash paid for income taxes $ 5,746 $ 3,925
=========== ===========
</TABLE>

See accompanying summary of accounting policies
and notes to financial statements

- 26 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Janex International, Inc. and subsidiaries (the Company) are in the
business of developing, marketing, and selling toys and functional
children's products which are manufactured by subcontractors. The Company
sells its products primarily to U.S. based retailers and their Hong Kong
subsidiaries.

On December 11, 1998, approximately 79 percent of the Company's outstanding
stock was acquired by Futech Interactive Products, Inc. ("Futech"). Because
the minority interest exceeded 20 percent at December 31, 1998 and 1999,
the Company did not establish a new basis of accounting upon the
acquisition. In 2000, Futech sold its interest to Palmilla Ventures Ltd.,
see Subsequent Events footnote.

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation. All balance sheet
accounts of the Company's foreign subsidiaries are translated at the
current exchange rate, at the balance sheet date, while income statement
items are translated at the average currency exchange rates for each period
presented. The resulting translation adjustments, if significant (at
December 31, 1998, and 1999 the adjustment was not significant), are
recorded as comprehensive income.

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

The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has incurred significant operating
losses in the past several years, negative net worth, negative working
capital at December 31, 1999, and has continued to experience a significant
decline in revenues from $5,596,979 in 1997 to $3,117,599 in 1998 and
$283,995 in 1999. These factors raise significant doubt as to the Company's
ability to continue as a going concern.

The Company's ultimate ability to continue as a going concern depends on
the market acceptance of products, an increase in revenues and the
achievement of operating profits and positive cash flow. The Company will
also require additional financial resources from Futech or other sources to
provide near term operating cash to enable the Company to execute its plans
to move toward profitability. Management believes that future financings,
the planned acquisitions described in the Subsequent Events Note 15 C and
additional sales to be generated from new product lines that are being
developed, will be sufficient to allow the Company to continue in
operation.

- 27 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

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

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
on various methods which approximate the first-in, first-out method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed
principally by the straight-line method over the estimated useful lives of
the assets which range from two to five years for molds, machinery and
equipment, and furniture and fixtures. Leasehold improvements are amortized
over the shorter of their estimated useful lives or the lease term.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 1999, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses, and long-term debt. The carrying value of cash and cash
equivalents, accounts receivable, accounts payable, and accrued expenses
approximates their fair value based on the liquidity of these financial
instruments or based on their short-term nature. The carrying value of
long-term debt approximates fair market value based on the market interest
rates available to the Company for debt of similar risk and maturities.

INTANGIBLE ASSETS

Intangible assets consist of goodwill and product development costs.

Costs of business acquisitions in excess of net asset of subsidiaries
acquired (goodwill) are amortized on a straight-line basis over a ten year
period. The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less then the carrying amounts of those assets. This methodology
includes intangible assets acquired. Goodwill relating to specific
intangible assets is included in the related impairment measurements to the
extent it is identified with such assets.

Product development costs consist of product design and development
(through subcontractors) for the various toys and children's products the
Company sells. The designs are stated at the lower of cost or net
realizable value and amortized on a straight-line basis over a one to five
year period.

- 28 -

<PAGE>

Management reviews goodwill and other intangible assets periodically for
possible impairment. This policy includes recognizing write-downs if it is
probable that measurable undiscounted future cash flows and/or the
aggregate net cash flows of an asset, as measured by current revenues and
costs (exclusive of depreciation) over the asset's remaining depreciable
life, are not sufficient to recover the net book value of an asset.

CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

The Company transacts business on a credit basis with its customers. The
Company routinely assesses the financial strength of its customers and, as
a consequence, believes that its trade accounts receivable credit risk
exposure is limited. The Company does not require collateral to support
customer receivables. However, foreign receivables are generally secured by
a letter of credit. The Company maintains an allowance for potential credit
losses and such losses have been within management's expectations.

The Company's two largest customers totaled approximately 52 percent and
68 percent of net sales in 1998 and 1999, respectively. The loss of
either of these two major customers could have a material adverse effect
on the results of the Company's operations.

REVENUE RECOGNITION

The Company recognizes revenue upon shipment of the product to the
customer, with appropriate allowances made for estimated returns and
uncollectible accounts.

INCOME TAXES

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) 109 "Accounting for Income Taxes." The
statement employs an asset and liability approach for financial accounting
and reporting of deferred income taxes. Generally, SFAS 109 allows for
recognition of deferred tax assets in the current period for the future
benefit of net operating loss carry forward and items for which expenses
have been recognized for financial statement purposes but will be
deductible in future periods. A valuation allowance is recognized, if the
weight of available evidence is more likely than not that some portion or
all of the deferred tax assets will not be realized.

STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
to the extent that the exercise price of the Company's employee stock
options equals management's estimate of the fair value of the underlying
stock on the date of grant, no compensation expense is recognized.

- 29 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

Deferred expense on stocks and options issued to officers and directors for
services or other consideration to be received in the future are offset
against equity and are amortized to expense over the period of benefit.

LOSS PER SHARE

Loss per share is calculated in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," (Statement 128).
Basic earnings per share is computed using the weighted average number of
common shares. Diluted earnings per share is computed using the weighted
average number of common share equivalents during the period. Common share
equivalents include employee stock options using the treasury method and
dilutive convertible securities using the if-converted method. Common share
equivalents have been excluded from the calculation of loss per share for
all periods presented, as their effect is anti-dilutive.

COMPREHENSIVE LOSS

As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," (Statement 130). Statement 130 establishes new rules
for the reporting and display of comprehensive loss and its components.
Comprehensive loss for the Company is the same as net loss for all periods
presented.

SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

Effective January 1, 1998, the Company adopted the SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
(Statement 131). Statement 131 established standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports.
Statement 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers.

PENSION PLAN

The Company has a 401K Plan for the benefit of the employees of the
Company. Under the provisions of the 401K, employees may make contributions
on a tax-deferred basis to their 401K accounts, up to the legal limits
provided for by United States income tax regulations. The Company, at its
discretion, may contribute a portion of the Company's profits to the 401K.
Such contributions are allocated between members of the 401K based on a
pre-stated formula. Employer contributions vest with 401K participants at
the rate of 20% per year, beginning in year two and ending in year six of
employment. The Company did not make contributions to the 401K for 1998 and
1999.

- 30 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board issued several pronouncements, of
such pronouncements only two may have future applicability, Statement of
Financial Accounting Standards (SFAS) No. 132 "Employers Disclosures about
Pensions and other Postretirement Benefits," effective June 15, 2000, and
No. 137 "Accounting for Derivative Instruments and Hedging Activities,"
effective June 15, 2000. The current financial statements would not have
been impacted by these pronouncements as the Company has not participated
in derivative transactions and a 401K Plan.

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
---- ----
<S> <C> <C>
Work in progress $ $
Finished goods 131,098 0
--------- -----------
$ 131,098 $ 0
========= ===========
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
1999
----
<S> <C>
Molds $ 1,861,874
Machinery and equipment 146,583
Leasehold improvements 3,866
-----------
2,012,323
Less: Accumulated depreciation and amortization (2,009,298)
-----------
$ 3,025
===========
</TABLE>

In 1999, approximately $101,000 of additional depreciation was provided
to recognize asset impairment relative to the Company's decline in
revenues.

5. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
1999
----
<S> <C>
Goodwill $ 422,220
Product development costs 109,942
------------
532,162
Less: Amortization (261,500)
------------
$ 270,662
============
</TABLE>

- 31 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

In 1999, approximately $17,000 of additional amortization was provided to
recognize asset impairment relative to the Company's decline in revenues.

6. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
1999
----
<S> <C>
Accrued royalties $ 273,225
Accrued commissions 102,635
Accrued compensative 100,000
Other accrued expenses 70,295
---------
$ 546,155
=========
</TABLE>

7. Related Party Transactions with Futech Interactive Products, Inc.

On December 11, 1998, Futech Interactive Products, Inc. (Futech) purchased
5,219,046 shares of common stock and shareholder loans of $1,480,783
(including interest of $250,784) from certain of the Company's majority
stockholders. Subsequently, the shareholder loans were converted into
8,011,645 shares of common stock and 5,000,000 shares of preferred stock.
After such conversion, as of December 31, 1998, Futech owned approximately
79 percent of the Company's outstanding stock. On January 19, 2000, all of
Futech's shares were transferred to another related party (see Subsequent
Events footnote).

Until December 1998, the Company had the ability to borrow up to $900,000
under a Revolving Credit Agreement (the "Agreement") with a significant
shareholder (the "Lender") of the Company that expired on October 19, 1999.
The Agreement bore interest at 9.5 percent payable quarterly. The Agreement
is secured by all of the assets of Janex Corporation, and the guarantee of
the Company. As additional consideration, on April 19, 1996, the Company
granted the Lender warrants to purchase up to 900,000 shares of the
Company's common stock, exercisable at a price of $1.45 per share through
April 19, 2000. The warrants are immediately exercisable. The Company has
used $150,000 under the Agreement as security to issue a stand-by letter of
credit in connection with the loan payable to the Company's Hong Kong
agent. This agreement ended and all warrants were canceled on December 11,
1998.

In connection with the acquisition of Janex Corporation in 1995, the
Company issued promissory notes to two stockholders totaling $1,000,000,
payable in semi-annual installments over a three-year period. On June 28,
1996, the note holders agreed to extend the payment date for all remaining
payments to February 1, 1998, subject to payment of interest at the rate of
9.5 percent per annum, retroactive to January 1, 1996. On August 4, 1997,
the note holders agreed to further extend the payment date to February 1,
1999. Quarterly interest payments commenced on September 1, 1996.

- 32 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

In connection with the extension of the notes, the Company entered into a
warrant agreement with each of the note holders, providing for the issuance
of up to 282,994 warrants to one of them and up to 167,994 warrants to the
other, to acquire a total of 450,988 shares of the Company's common stock,
exercisable at a price of $1.45 per share through June 28, 2000. The
warrants vest in six-month increments over the term of the loan, and if the
loan is paid off early, certain warrants will be void. The agreement ended
and all warrants were canceled on December 11, 1998.

The Company charged to operations $116,863 and $0 of imputed interest
expense from the issuance of stock purchase warrants noted above for the
years ended December 31, 1998 and 1999 respectively.

During 1999, Futech was the primary source for financing the Company.

8. NOTE PAYABLE - BANK

The Company may borrow up to $400,000 under a line of credit agreement
formed with a bank. Borrowings under the line bear interest at the bank's
prime rate (8.5 percent at December 31, 1999) plus 0.25 percent. The line
is secured by all of the Company's assets and is personally guaranteed by
two former shareholders. Borrowings of $256,943 under the line, which have
been extended from time to time are due July 1, 2000. The maximum amount
outstanding during the year, and the weighted average amount outstanding
during the year approximates the outstanding balance at December 1999. The
weighted average interest rate is 8.375 percent.

9. INCOME TAXES

The income tax provision, all of which is current, consists of the
following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1999
---- ----
<S> <C> <C>
Federal $ $
State 5,746 6,925
Foreign
---------- ----------
$ 5,746 $ 6,925
========== ==========
</TABLE>

The Company's net deferred tax asset and deferred tax asset valuation
allowance are comprised of the following carry forwards:

<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
---- ----
<S> <C> <C>
Net operating loss carryforward $ 3,600,000 $ 4,000,000
Less: Valuation allowance $ (3,600,000) $ (4,000,000)
--------------- ---------------
$ 0 $ 0
=============== ===============
</TABLE>

Because of the Company's recurring losses, the net deferred tax assets have
a 100 percent valuation allowance at December 31, 1998 and 1999.

- 33 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

The income tax provision differs from the amount computed by applying the
U.S. Federal income tax rate (34 percent) because of the effect of foreign
losses not deductible in the U.S. return and the tax effect of unrecognized
net operating loss deductions.

At December 31, 1998 and 1999, the Company had federal net operating loss
(NOL) carryforwards of approximately $10,000,000 and $11,000,000,
respectively. The Company also had state net operating loss (NOL)
carryforwards. NOL carryforwards may be available to offset future taxable
income. If not used, the federal and state NOL carryforwards will expire
through 2019 and 2004, respectively. Federal tax rules impose limitations
on the use of NOL carryforwards from a change in ownership.

The losses before taxes related to the foreign subsidiaries for the years
ended December 31, 1998 and 1999 were $839,248 and approximately $285,000,
respectively.

10. COMMITMENTS AND CONTINGENCIES

A. LEASES

The Company maintains a noncancelable operating lease on its former
facility. Such lease expires December 31, 2000. The annual rental due
in 2000 is $102,000. Effective April 1,1997, the Company entered into
an agreement to sublease a portion of the former facility to a third
party for the balance of the lease. Effective May 1, 1998, the entire
facility was subleased to a different third party. The monthly rental
income derived from the sublease was slightly less than rent expense.
The difference was not material.

Net rental expense was approximately $37,000 for the year ended
December 31, 1998. Rent expense for 1999 approximated $108,000 and
sublease rental income approximated $71,000.

B. ROYALTIES

At December 31, 1999, the Company has a commitment for a minimum
guaranteed royalty under a licensing agreement for $15,000 due in
2000.

Total royalty expense was approximately $381,000 and $247,000 for the
years ended December 31, 1998 and 1999, respectively.

- 34 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

During the year ended December 31, 1996, holders of certain warrants
threatened to sue the Company, claiming that the Company was obligated to
register the stock underlying the warrants and to use its best efforts to
maintain the registration statement effective during the period the
warrants are exercisable, and that the Company had failed to meet these
obligations. On March 26, 1996, the Company entered into a Settlement
Agreement and Specific Release with the warrant holder under which the
Company issued additional warrants to purchase 100,000 shares of the
Company's common stock, at a price of $.64 per share, in exchange for a
release from any and all prior claims relating to violations of the warrant
agreement and failure to update the registration statement. These warrants
expire on March 26, 2001.

11. STOCK-BASED COMPENSATION

A summary of the Company's stock option activity and related information is
as follows:

Weighted-Average
Options Exercise Price
-------------
<S> <C> <C>
Outstanding, December 31, 1997 1,846,236 $ (1.45)
Granted
Exercised
Forfeited (1,801,236) (1.45)
------------
45,000 1.67
Outstanding, December 31, 1998
Granted
Exercised
Forfeited (25,000) (1.25)
------------
Outstanding, December 31, 1999 20,000 2.13
============

Exercisable at end of year 20,000
============
</TABLE>

The exercise price for options outstanding as of December 31, 1999 is $2.13
per share. The remaining contractual life of those options is three months.

The fair value of options and warrants is estimated on the date of grants
utilizing the Black-Scholes option pricing model with the following
weighted average assumptions for years ended December 31, 1998, and 1999:
expected life of 4.4 years, expected volatility of 22.5 percent, risk-free
interest rate of 6 percent and a 0 percent dividend yield.

Option valuation models require the input of highly subjective assumptions.
Because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.

- 35 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the applicable vesting period. The pro
forma effect of SFAS No. 123 was not material for any year presented.

12. COMMON STOCK

The Company has the following shares reserved for future issuance at
December 31, 1999:

<TABLE>
<S> <C>
Warrants at $0.64 per share, expiring March 26, 2001 100,000
Stock Options at $2.13 per share, expiring March 31, 2000 20,000
---------
120,000
=========
</TABLE>

All warrants outstanding are fully exercisable.

1,725,000 Public Warrants which were issued in connection with the 1991
Public Offering expired in 1999.

On January 14, 1998, the Company issued 1,346,153 shares of common stock at
fair market value for a total purchase price of $175,000 in a private
placement with two shareholders of the Company. In 1999, 30,000 shares of
common stock were issued for services at $180 ($.06 per share).

13. SEGMENT INFORMATION

The Company operates exclusively in the children's products industry. For
geographical reporting, revenues are attributed to the geographic location
from which goods are shipped. Intercompany sales are recorded at cost.

In 1998, customer A and customer B represented 47 percent and 5 percent of
the Company's net sales, respectively. In 1999 sales to two customers
approximated 68%. Sales to these customers were made by the Hong Kong
segment.

- 36 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

A summary of the Company's operations by geographical area for the years
ended December 31, 1998 and 1999 were as follows:

<TABLE>
<CAPTION>
ADJUSTMENTS AND
UNITED STATES HONG KONG ELIMINATIONS CONSOLIDATED
--------------- ------------- ------------------ --------------
<S> <C> <C> <C> <C>
1998
Net sales:
Customers $ 65,683 $ 3,051,916 $ $ 3,117,599
Intercompany 1,222,267 6,685 (1,228,952)
------------- ----------- ----------- ------------
Total revenue 1,287,950 3,058,601 (1,228,952) 3,117,599

Operating loss (82,950) (946,212) (1,029,162)
Interest expense (234,976) (25,557) (260,533)
Depreciation and -
amortization (123,702) (252,581) (376,283)
Total assets $ 3,055,804 $ 801,894 $(2,752,559) $ 1,105,139
</TABLE>

Intercompany O
------------ ----------- -----------
Total revenue 3,671 280,324 283,995
N
Operating loss (1,097,331) (343,683) (1,441,014)
Interest expense 24,580 650 E 25,230
Depreciation
and
amortization 120,422 332,900 453,322

Total assets $ 354,164 $ 63,727 $ 417,891
</TABLE>

- 37 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

14. RELATED PARTY TRANSACTIONS

The Company pays sales commissions at the rate of 4 percent of net sales to
a company owned by a former stockholder and director, relating to customers
located in New York, New Jersey, Connecticut and Pennsylvania. Commissions
on such sales of approximately $1,625,000, and $0 amounted to $65,154, and
$0 for the years ended December 31, 1998 and 1999, respectively, which are
included in selling, general and administrative expenses. Accrued
commissions included in accrued expenses and accounts payable, on such
sales amounted to $134,754, and approximately $48,000 as of December 31,
1998 and 1999.

The Company also rented showroom space from this former stockholder. No
expense was incurred in 1998.

15. SUBSEQUENT EVENTS

A. Non-qualified stock option agreements

(1) On February 14, 2000 the Company issued an individual an option
to purchase 600,000 shares of common stock at $.001 per share in
consideration of the individual providing general business
advisory and consulting services. Such options were exercised.

(2) On March 29, 2000 the Company issued an employee of the Company
an option to purchase 1,000,000 shares of common stock at $.001
per share 500,000 of such options were exercisable immediately
and the remaining 500,000 become exercisable on June 29,2000.

(3) Also on March 29, 2000, the Company issued options to purchase an
additional 550,000 shares of common stock at $.001 per share to
four other individuals including an employee of the Company and
the former stockholder referred to in Note 14.

B. Stock Option Plan

In March 2000, the Company adopted the 2000 Combination Stock Option
Plan ("the Plan"). This Plan is to be made available to employees of
the Company and its subsidiaries (if any), and to individuals whose
services contribute to the growth and development of the Company.
Options to purchase up to 2,500,000 shares may be issued under the
Plan, and options may be awarded for up to ten (10) years.

- 38 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

C. Mergers and Acquisitions and Company's Plan to Return to Viability

By 1999, it was apparent to Company management that the level of sales
were not sufficient to sustain the Company as a going concern without
significant growth in revenue and profitability, and that there would
need to be a substantial increase in the Company's business volume and
product availability to support future growth.

Accordingly, during 1999, Company management began a process of
seeking significant acquisitions of, and new relationships with,
several companies with complementary products or functional services.
The Company entered into a global merger agreement that involved the
Company combining with several companies. The proposed merger
transaction was not consummated and the parties withdrew from the
overall transaction. The Company believes that the focus of the
Company's management on the acquisitions had an adverse impact upon
sales performance.

Despite the adverse impact of the abandoned transaction in 1999,
Company management remains convinced that the Company must pursue
growth through acquisitions, mergers, and strategic partnerships,
particularly with companies with complementary products and services
and with established revenues. In addition, management believes that
the establishment of a recognized and attractive presence on the
Internet is necessary to expand the market for the Company's products
and to position the Company as a major supplier of children's
entertainment and educational toys and services.

As part of this plan for the introduction of additional products and
for the preparation for an effective Internet presence for the
Company, the Company moved during early 2000 to acquire and establish
relationships with companies with suitable technologies and products
with the intention of enlarging the Company's product base, enhancing
materially the Company's distribution capability, and promoting growth
in the Company's core business and revenues.

On January 19, 2000, the Company signed a non-binding letter of intent
to acquire WebShare, Inc. ("WebShare"), a San Diego-based company that
provides lead generation services to the timeshare vacation resort
industry through its subsidiary ResorTravel.com. The transaction is
subject to, among other things, the

- 39 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

negotiations, execution and delivery of definitive agreements.

On February 17, 2000, the Company signed a memorandum of understanding
to acquire approximately 63.88% of the common stock of Trudy
Corporation, a public company, from its major shareholders (reduced to
52% to reflect sales by the majority stockholder). Trudy Corporation
is a Norwalk, Connecticut-based designer, manufacturer, and
distributor of high quality specialty publishing products, with a
library of more than eighty books under the Soundprints imprint. The
transaction is subject to, among other things, board approval and the
negotiation, execution and delivery of definitive agreements.

On February 25, 2000, the Company entered into an Agreement, as
amended, with Futech Interactive Products, Inc. ("Futech"), an Arizona
company, to acquire the name and rights to the Internet URL
www.oKid.com and the related website. This website had been under
development by Futech for some time, and Company management believes
that it provides an ideal opportunity for the Company to move directly
into a visible Internet presence for business-to-consumer and
business-to-business selling. The transaction is subject to approval
of the board of directors of Futech and the Company.

On February 25, 2000, the Company entered into an Agreement, as
amended, with Futech to acquire all of the assets of Futech (other
than the assets related to the website www.oKid.com) and assume
certain liabilities of Futech. Futech's business consists of
third-party publishing and proprietary publishing products using the
Futech interactive technology and patented products. This technology
relates primarily to printed audible signals, visual circuitry and
associated electrical components such as switches, batteries, speakers
and liquid crystal displays. The Company plans to apply the technology
to produce books and play boards that emit speech, music and sound
effects or other visual signals activated by switches in the surface
of the product. The Company plans continue to expand this proprietary
product line selection and to broaden the base of licenses for the use
of Futech's products and technology. The transaction is subject to
board and stockholder approval of Futech and board approval of the
Company and stockholder approval of an increase in the number of
authorized but unissued shares of the Company's common stock.

- 40 -

<PAGE>

JANEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1999

On March 24, 2000, the Company entered into a Merger Agreement, as
amended, with the DaMert Company ("DaMert"), a Berkeley,
California-based designer, manufacturer, and distributor of specialty
toy products. This transaction is subject to board and stockholder
approval of the seller and approval of the Company's board.

There can be no assurance that any of the foregoing acquisitions will
be consummated.

Because the Company did not have sufficient authorized but unissued
shares of common stock to execute its business and financial plans,
in March 2000, Palmilla Ventures Limited Partnership, of which
Vincent Goett, President and Chief Executive Officer of the Company,
is a general partner, agreed to surrender to the Company an aggregate
of 10 million shares of the Company's common stock so that such
shares could be restored to the status of authorized but unissued
shares of common stock. Of the aggregate 10 million shares
surrendered, 1,159,952 (6.0% of the outstanding common stock prior
to surrender) were being held for the benefit of Dan Lesnick, Chief
Operating Officer and a Director of the Company, 2,182,417 (11.4% of
the outstanding common stock prior to surrender) were being held for
the benefit of Mr. Howard Moore, and 1,657,631 (8.6% of the
outstanding common stock prior to surrender) were being held for the
benefit of Mr. Les Friedland, the Company's former president.

On March 7, 2000, the Company entered into a non-exclusive licensing
agreement with Fundex Games, Ltd. for the application of Janex's
licensed game-board technology to a variety of present and future
Fundex products. Under the agreement, Janex will receive royalties to
the extent of net profits, as defined, from the sale of Fundex
products incorporating Janex's technology and Janex acquires
reciprocal rights for the sale of Fundex products. The License
Agreement expires December 31, 2000.

- 41 -

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

As reported in the Company's Form 8-K dated February 25, 1999, the
Company engaged Ernst & Young, LLP as its independent auditor for the fiscal
year ending December 31, 1998, to replace the firm of BDO Seidman, LLP. The
decision to change auditors was made in the ordinary course of business.

The reports of BDO Seidman, LLP on the Company's financial statements
for 1996 and 1997 did not contain an adverse opinion or a disclaimer of opinion
and were not qualified as to uncertainty, audit scope, or accounting principles,
except as relating to the Company's ability to continue as a going concern.

In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 1996 and 1997, there were no
disagreements with BDO Seidman, LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of BDO Seidman, LLP would have caused
BDO Seidman, LLP to make references to the matter in their report.

As reported in the Company's Form 8-K dated April 28, 2000, the Company
engaged Abrams and Company, PC as its independent auditor and BDO McCabe Lo &
Co. as auditor for its subsidiary, Pro Gains Company Limited, for the fiscal
year ending December 31, 1999, in each case to replace Ernst & Young, LLP. The
decision to change auditors was made in the ordinary course of business.

The report of Ernst & Young, LLP on the Company's financial statements
for 1998 did not contain an adverse opinion or a disclaimer of opinion and were
not qualified as to uncertainty, audit scope, or accounting principles, except
as discussed in the following paragraph.

The report of Ernst & Young, LLP on the Company's financial statements
for the fiscal year ending December 31, 1998, indicates that recurring losses
and net working capital deficiency raise substantial doubt as to the Company's
ability to continue as a going concern. Although Management discusses, in a
footnote, its plans in regard to these matters, the financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

In connection with the audits of the Company's financial statements for
the fiscal year ended December 31, 1998, there were no disagreements with Ernst
& Young, LLP on any matters of

- 42 -

<PAGE>

accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst &
Young, LLP, would have caused Ernst & Young, LLP to make references to the
matter in their report.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

The following table sets forth information regarding the Company's executive
officers and directors as of December 31, 1999. Each of the Directors will hold
his office until the next annual meeting and until his successor is duly elected
and qualified. Each officer will hold his office until his successor is duly
elected and qualified or until his earlier resignation or removal.

<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------- ---------- -------------------------------------------------
<S> <C> <C>
Vincent W. Goett 36 Chairman of the Board, Chief Executive Office,
President and Director
Daniel Lesnick 47 Chief Operating Officer, Director(1)
Charles M. Foley 42 Interim Chief Financial Officer,
Treasurer and Secretary
Joseph K. Petter 58 Chief Operating Officer(1)
</TABLE>

(1) Mr. Lesnick replaced Mr. Petter as Chief Operating Officer, effective from
January 1, 2000.

VINCENT W. GOETT. Mr. Goett has served as Chairman of the Board, Chief
Executive Officer and Director of the Company since December 11, 1998. From
September 1985 to August 1991, Mr. Goett was President of Westplex, Inc., a
company that effected major investments in commercial real estate. From August
1991 to January 1994, Mr. Goett owned and operated Paradise International, an
investment business engaged in acquisition and joint venture activities. Mr.
Goett joined Futech Interactive Products, Inc. ("Futech") as its Chief Operating
Officer on January 5, 1994, and has served as Chairman and Chief Executive
Officer and Director of Futech since March 1995. Mr. Goett attended Arizona
State University, where he studied Business Management.

DANIEL LESNICK. Mr. Lesnick has been a Director of the Company since August
29, 1997 and Chief Operating Officer since January 1, 2000. Mr. Lesnick was
Executive Vice President and Chief Operating officer of the Company from August
4, 1997 to December 11, 1998. Prior to that time, Mr. Lesnick had been Executive
Vice President of Janex Corporation, a wholly owned subsidiary of the Company,
from October 6, 1993 to January 31, 1997, at which time he left Janex.

- 43 -

<PAGE>

From August 1988 to October 5, 1993, Mr. Lesnick was Vice President and co-owner
of MJL Marketing, Inc. (now Janex). He was Director of Sales and Marketing for
Sunk Yong Company, a Korean corporation operating in a number of different
industries, from February 1986 to July 1988. Previously, Mr. Lesnick held
positions as Merchandising Manager with Spencer Gifts and as a Senior Buyer with
Lionel Leisure, both specialty retailers. Mr. Lesnick holds an associate degree
in marketing.

CHARLES M. FOLEY. Mr. Foley currently is fulfilling the role of
Interim Chief Financial Officer/Secretary and Treasurer for the Company. Mr.
Foley is President and founder of Home, Office & Personal Organizers, Inc. -
a consulting firm that specializes in accounting, financial, administrative
and Y2K issues. He served as Chief Operating Officer and Financial Officer
for Futech Interactive Products, Inc. from January 1995 through February
1997. During this time Mr. Foley resided on Futech's Board of Directors from
1997 through spring of 1998. Prior to his tenure at Futech, Mr. Foley was the
Corporate Controller for Paradise International Distribution Corporation,
the international and specialty markets distributor for Futech's Talking
Pages-Registered Trademark- book line. He began with Paradise in April of
1994 and continued in that capacity while assuming his new duties at Futech.

JOSEPH K. PETTER. Mr. Petter served as Chief Operating officer of Janex
from December 11, 1998 until 1 January, 2000. He has also served as Chief
Operating Officer of Futech since February 1997. Mr. Petter joined Futech as
Vice President of Operations in March 1996. From July 1989 to December 1995, Mr.
Petter was a Division Vice President of ADVO, Inc., a direct mail marketing
company. From 1970 to 1989, Mr. Petter was a Group or Senior Manager with
several different operating companies of the Dun & Bradstreet Corporation. Mr.
Petter completed the Executive Management Program at the University of Chicago
and received a B.S. in industrial Engineering from the Illinois Institute of
Technology.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms filed by such persons.

Based solely on the Company's review of forms furnished to the Company,
the Company believes that all filing requirements with respect to the year ended
December 31, 1999 applicable to the Company's executive officers, directors, and
more than 10% shareholders were complied with, except that Futech Interactive
Products, Inc. failed to file (i) four Form 4s, Statement of Changes of
Beneficial Ownership of Securities, with respect to sales of securities in
February, September, October and November 1999, and (ii) a Form 5, Statement of
Beneficial Ownership of Securities.

- 44 -

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION.

COMPENSATION OF DIRECTORS

Directors who are not employees of the Company receive $500 for each
directors meeting attended, and may be granted options to purchase stock in the
Company at the discretion of the Board. No fees for serving as directors of the
Company are payable to employees of the Company. Directors are reimbursed for
reasonable out-of-pocket expenses incurred in performing their functions as
directors of the Company.

COMPENSATION OF OFFICERS AND KEY EMPLOYEES

The following table sets forth the compensation paid or to be paid by
the Company with respect to the fiscal year ended December 31, 1999, to the
Chief Executive Officer and the other executive officers or key employees whose
total annual salary and bonus exceeded $100,000:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION(1) LONG TERM
COMPENSATION
- -----------------------------------------------------------------------------------------------------

OTHER AWARDS ALL
NAME & PRINCIPAL ANNUAL SECURITIES OTHER
POSITION YEAR SALARY BONUS COMPENSATION(2) UNDERLYING COMPENSATION
OPTIONS
(SHARES)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Vincent W. Goett 1999 100,000 -- -- -- --
Chief Executive Officer 1998 -- -- -- -- --

Daniel Lesnick 1999 $104,000 -- -- -- --
Chief Operating Officer, 1998 $104,000 -- -- -- --
Director

- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>

(1) Compensation under Company employee benefit plans, to which all employees
of the Company are eligible, is not included in the table.

(2) Includes car allowances, Company paid vehicles and Company paid
health/life/disability insurance.

- 45 -

<PAGE>

STOCK OPTION PLAN

In March 2000, the Company adopted the 2000 Combination Stock Option
Plan ("the Plan"). This plan is to be made available to employees of the Company
and its subsidiaries (if any), and to individuals whose services contribute to
the growth and development of the Company. Options to purchase up to 2,500,000
shares may be issued under the Plan, and options may be awarded for up to ten
(10) years.

As of April 30, 2000, options to purchase 2,150,000 shares of the
Company's Common Stock have been issued under the Plan.

The following table provides information concerning grants of options
to purchase the Company's Common Stock made during the fiscal year ended
December 31, 1999, to persons named in the Summary Compensation Table:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Option Grants in Last Fiscal Year
Individual Grants in Fiscal 1999
- --------------------------------------------------------------------------------------------------------------------------
Market Price
Number of Securities % of Total Options Exercise of on Grant
Underlying Options Granted to Base Date
Name Granted Employees in Fiscal Year Price ($/sh) Expiration Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vincent W. Goett -0- -0- --- --- ---
- --------------------------------------------------------------------------------------------------------------------------
Daniel Lesnick 0 0 --- --- ---
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table provides information concerning each exercise of
stock options during the fiscal year ended December 31, 1999, and the value of
unexercised options at December 31, 1999, to persons named in the Summary
Compensation Table:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
- --------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Acquired Options at FY-End FY-End ($)
Name on Exercise (#) Value Realized (Exercisable/Total) (Exercisable/Unexercisable)
($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vincent W. Goett -0- -0- 0/0 -/-
- --------------------------------------------------------------------------------------------------------------------
Daniel Lesnick -0- -0- 0/0 -/-
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

- 46 -

<PAGE>

EMPLOYMENT ARRANGEMENTS

The Company has not entered into employment agreements with any of its
executive officers.

In August 1995, the Company established a 401K Profit Sharing Plan
("401K") for the benefit of the employees of the Company. Under the provisions
of the 401K, employees may make contributions on a tax-deferred basis to their
401K accounts, up to the legal limits provided for by United States income tax
regulations. The Company, at its discretion, may contribute a portion of the
Company's profits to the 401K. Such contributions are allocated between members
of the 401K based on a pre-stated formula. Employer contributions vest with 401K
participants at the rate of 20% per year, beginning in year two and ending in
year six of employment. For the year ended December 31, 1999, the Company did
not make a contribution to the 401K.

The Company has a health insurance plan, which covers all employees in
a non-discriminatory manner. With the exception of the health insurance plan and
the 401K, the Company has no insurance or medical reimbursement plans covering
its officers or directors, nor does it contemplate implementing any such plans
at this time.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth information, as of April 30, 2000, with
respect to the beneficial ownership of the Company's Common Stock by each person
known by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, by each of the Company's directors, and by the
officers and directors of the Company as a group:

<TABLE>
<CAPTION>
Name and address of Shares Owned Percent
Beneficial Owners Beneficially of Class
- ----------------- ------------ --------
<S> <C> <C>
Security ownership of beneficial owners:

Vincent W. Goett 12,855,491(1) (2) 48.15%(2)
2999 N. 44th. St., Suite 225
Phoenix, AZ 85018

- 47 -

<PAGE>

Daniel Lesnick 1,391,942(2) 6.41%(2)
564 Grant St.
Newtown, PA 18940

Charles M. Foley -0- --
c/o Futech Interactive Products, Inc.
2999 N. 44th Street
Phoenix, AZ 85018

Les Friedland 1,989,157(2) 9.16%(2)
615 Hope Road
Building One
Eatontown, NJ 07724

Howard W. & Helene Z. Moore 2,618,900(2) 12.06%(2)
2540 Hayesville Ave.
Henderson, NV 89052

Security ownership of management:

Vincent W. Goett 7,855,491(1)(2) 48.15%(2)
Daniel Lesnick 1,391,943(2) 6.41%(2)

All Executive Officers and Directors
as a group (3 persons): 14,247,433(2) 53.36%(2)
</TABLE>

(1) Shares held of record by Palmilla Ventures Limited Partnership, over
which Mr. Goett shares voting and investment control.

(2) Includes 6,000,000, 1,391,943, 1,989,157 and 2,618,900 shares of
common stock issuable to Messrs. Goett, Lesnick, Friedland and Mr. And
Mrs. Moore, respectively, following an increase to 65,000,000 in the
number of authorized but unissued shares of common stock of the
Company. In certain circumstances, additional shares of common stock
may be issuable to the foregoing persons. See Item 12: "Certain
Relationships and Related Transactions". Also includes 5,000,000
shares of common stock issuable upon conversion of 5,000,000 shares
of the Company's convertible preferred stock. Mr. Goett has waived
his right to convert these shares until the Company's authorized
but unissued shares are increased.

For purposes of computing "Percent of Class" owned, the number of
issued and outstanding shares of common stock has been increased to reflect the
aggregate minimum of 12,000,000 shares of common stock issuable to the foregoing
persons.

- 48 -

<PAGE>

ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company has engaged the services of a manufacturer's representative
firm, Les Friedland Associates ("LFA"), to represent the Company to customers
located in the states of New York, New Jersey, Connecticut and Pennsylvania. LFA
represents the Company to three of its largest customers, Toys R Us, Wal-Mart
and Kmart. The principal owner and operator of LFA, Mr. Leslie Friedland, is a
former President of Janex and is the beneficial owner of approximately 1.1% of
the Company's issued and outstanding common stock as of March 31, 2000. Under
the terms of the representative agreement ("LFA Agreement"), LFA was to be paid
a commission of 4.25% on all sales that it generates within its territory.
Effective April 1, 1995, LFA and the Company agreed to reduce the commission
rate under the LFA Agreement to 4%. The terms and conditions of the
representative agreement are standard in the industry, and the agreement is
cancelable at any time with 30 days notice. Pursuant to the LFA Agreement, LFA
was paid, or will be paid, $47,500 for the year ended December 31, 1999, and
$65,154 for the year ended December 31, 1998.

In June 1999, the Company entered into a merger agreement ("Merger
Agreement") with, among other parties, Futech Interactive Products, Inc.
("Futech"), then the majority stockholder of the Company. Vincent Goett, the
Company's President and Chief Executive Officer, is President, Chief Executive
Officer and a major stockholder and creditor of Futech. The Company, Futech,
Trudy Corporation, DaMert Company and Fundex Games, Ltd. were going to combine
into a diversified children's product company that would design, develop and
distribute proprietary children's products, such as books, games, toys and
stationary. Effective as of December 1, 1999, the parties terminated the Merger
Agreement and all rights and obligations of the parties thereunder.

During 1998, Futech advanced an aggregate of approximately $620,000 to
the Company, which was used to fund the Company's operations. These amounts were
unsecured and non-interest bearing. During 1999, Futech advanced approximately
an additional $1 million, which was also used to fund the Company's operations.
These amounts were also unsecured and non-interest bearing. At December 31,
1999, the aggregate amount owned to Futech was approximately $1.6 million.

In January, 2000, the Company entered into a license agreement
("License Agreement") with Futech. Under the License Agreement, Futech granted
the Company an exclusive license of the technology related to the "Toynet"
system of interactive talking toys. The License Agreement may be terminated by
either party upon 60 days written notice, without penalty. The License Agreement
specifies a royalty rate of 10% for non-licensed product and 5% for licensed
product.

- 49 -

<PAGE>

In February 2000, the Company entered into an agreement, as amended
(the "Futech Agreement"), with Futech pursuant to which the Company would
acquire all the assets of Futech (other than those related to the website
www.oKid.com) and assume certain Futech liabilities. As discussed above, Vincent
Goett is President, Chief Executive Officer and a major stockholder and creditor
of Futech. Under the Futech Agreement, in exchange for the Futech Assets, the
Company would issue Futech 16,000,000 shares of the Company's common stock. The
Company would be obligated to issue additional shares of common stock in the
event that the market price per share of the common stock is less than $1.00 at
closing and has not reached a price of $1.00 per share during the 24 months
following the closing. In addition, the Company has agreed to assume up to $10
Million of Futech's obligations to a certain bank. Futech has agreed to cancel
approximately $1.6 Million in debt owed by the Company to Futech. This
transaction is subject to, among other conditions, approval of Futech's board of
directors, stockholders and creditors, as well as the approval of the Company's
board of directors and stockholder approval of an increase in the number of the
Company's authorized but unissued shares.

In addition, in February 2000, the Company entered into an agreement
(the "oKid Agreement") with Futech to purchase the URL domain name and related
website www.oKid.com (the "oKid Assets"). Under the oKid Agreement, the Company
will acquire the oKid Assets for 4,000,000 shares of the Company's common stock,
subject to increase as described above with respect to the Company's purchase of
the Futech Assets. This transaction is subject to, among other conditions,
approval of the board of directors of Futech and the Company.

Because the Company did not have sufficient authorized but unissued
shares of common stock to execute its business and financial plans, in March
2000, Palmilla Ventures Limited Partnership, of which Vincent Goett is a general
partner, agreed to surrender to the Company an aggregate of 10 million shares of
the Company's common stock so that such shares could be restored to the status
of authorized but unissued shares of common stock. Of the aggregate 10 million
shares surrendered, 1,159,952 (6.0% of the outstanding common stock prior to
surrender) were being held for the benefit of Dan Lesnick, Chief Operating
Officer and a Director of the Company, 2,182,417 (11.4% of the outstanding
common stock prior to surrender) were being held for the benefit of Mr. Howard
Moore, and 1,657,631 (8.6% of the outstanding common stock prior to surrender)
were being held for the benefit of Mr. Les Friedland, the Company's former
president.

Under this Agreement, as soon as possible following an increase to 65
million in the number of the Company's authorized but unissued shares, the
Company will return the 10 million shares surrendered and will issue the
surrendering shareholders, pro rata, based on the number of shares

- 50 -

<PAGE>

surrendered, an aggregate of 2 million additional shares of common stock as
compensation for surrendering their shares to the Company.

In addition, if the price of the Company's common stock is lower when
the 10 million replacement shares are issued, than it was on the date the shares
were surrendered, the surrendering shareholders will be issued additional
shares, pro rata, based on the number of shares surrendered, such that the total
replacement shares issued is equal in value on the replacement date to the value
of the shares surrendered on the date of surrender. For example, if the value of
10 million shares on the date of surrender was $15 Million and the market price
of the Company's common stock on the replacement date was $1.00, the
surrendering shareholders would be issued 15 million shares of common stock on
the replacement date to replace the $15 Million in value surrendered at the
surrender date.

- 51 -

<PAGE>

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS. The following exhibits have been or are being filed herewith,
and are numbered in accordance with Item 601 of Regulation S-B:

Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Global Merger Agreement dated June 4, 1999 and incorporated by
reference to Exhibit 2.1 to the Company's Form 8-K filed with
the Commission June 15, 1999.

2.2 Termination Agreement dated as of December 1, 1999 relating to
Global Merger Agreement.

2.3 Termination, Release and Settlement Agreement dated December 1999.

3.1 Articles of Incorporation. (1)

3.2 Amendment No. 1 to Articles of Incorporation. (2)

3.3 Statement of Resolution Establishing Series for Shares. (2)

3.4 Amendment No. 2 to Articles of Incorporation. (2)

3.5 Bylaws of the Company. (3)

3.6 Articles of Amendment to Articles of Incorporation, dated
August 11, 1994 and filed on August 16, 1994. (4)

4.1 Specimen Common Stock Certificate. (2)

10.1 Lease Agreement between With Design in Mind International, Inc., a
Colorado corporation and Warner Center Business Park Properties III,
L.P. for premises located at 21700 Oxnard Street, Suite 1610, Woodland
Hills, CA 91367 dated January 6, 1994. (5)

- 52 -

<PAGE>

10.26 Indemnification Agreement wherein the Company is indemnifying
its former accountants BDO Seidman, LLP for claims arising out of
the reissuance of the Company's 1997 financial statements. (6)

16 Letter of BDO Seidman, LLP (7)

16.1 Letter of Ernst & Young, LLP (8)

21 Subsidiaries of the Registrant

27 Financial Data Schedule
</TABLE>

- ------------------------------
(1) Incorporated by reference to Exhibit 3(a) to the Company's Registration
Statement on Form 8-A, filed with the Commission on August 15, 1989 and
declared effective on September 1, 1989.
(2) Incorporated by reference to an exhibit to the Company's Registration
Statement on Form S-1 filed August 8, 1990.
(3) Incorporated by reference to Exhibit 3(b) to the Company's Registration
Statement on Form 8-A, filed with the Commission on August 15, 1989 and
declared effective on September 1, 1989.
(4) Incorporated by reference to an exhibit to the Company's Registration
Statement filed with the Commission December 20, 1994.
(5) Incorporated by reference to an exhibit to the Company's Form 10-KSB for
the fiscal year ended December 31, 1993.
(6) Incorporated by reference to an exhibit to the Company's Form 10-K SB for
the year ended December 31, 1998.
(7) Incorporated by reference to Exhibit 16 to the Company's Form 8-K filed
with the Commission of March 10, 1999.
(8) Incorporated by reference to Exhibit 16 to the Company's Form 8-K filed
with the Commission on April 28, 2000.

b) REPORTS ON FORM 8-K. There were no reports filed on form 8-K during the
last quarter of the fiscal year.

- 53 -

<PAGE>

SIGNATURES

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

Dated: May 11, 2000
JANEX INTERNATIONAL, INC.

By: /s/ Vincent W. Goett
---------------------
Vincent W. Goett, Chairman of the Board,
President and Chief Executive Officer

In accordance with the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Vincent Goett Chairman, President and May 11, 2000
- ---------------------------
Vincent Goett Chief Executive Officer
(principal executive officer
and director)

/s/ Daniel Lesnick Chief Operating Officer May 11, 2000
- ---------------------------
Daniel Lesnick and Director
(principal executive officer
and director)

/s/ Charles M. Foley Chief Financial Officer (Interim) May 11, 2000
- ---------------------------
Charles M. Foley (principal financial and
accounting officer)

</TABLE>

- 54 -

<PAGE>

EXHIBIT 2.2

TERMINATION AGREEMENT

This Termination Agreement, dated as of December 1, 1999 ("Agreement"),
is by and between Futech Interactive Products, Inc., an Arizona corporation
("Futech"), Trudy Corporation, a Delaware corporation ("Trudy"), DaMert Company,
a California corporation ("DaMert"), Janex International, Inc., a Colorado
corporation ("Janex"), Futech Interactive Products (Delaware), Inc., a Delaware
corporation, Futech Toys & Games, Inc., a Nevada corporation, Frederick A.
DaMert, Trustee of the DaMert Trust, UTD September 28, 1998, Gail Patton DaMert,
Trustee of the DaMert Trust, UTD September 28, 1998, Vincent W. Goett and
William W. Burnham.

RECITALS

1. The parties to this Agreement desire to terminate effective as of
the date hereof that certain merger agreement, dated as of June 7, 1999 (the
"Merger Agreement") by and between, among others, the parties hereto and to
terminate all of the rights and obligations of the parties to the Merger
Agreement. None of the parties hereto shall have any further liability or
obligation arising out of the Merger Agreement and the transactions contemplated
thereby.

2. The parties acknowledge that Fundex Games, Ltd., a Nevada
corporation, and its shareholders formally terminated as parties to the Merger
Agreement, effective December 1999 pursuant to that certain Termination, Release
and Settlement Agreement.

AGREEMENT

For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

1. TERMINATION OF MERGER AGREEMENT. The Merger Agreement and all the
rights and obligations of the parties under such Agreement are hereby terminated
and each party hereby forever releases and discharges each other party from any
and all obligations, claims, liabilities, damages, expenses and costs relating
to the Merger Agreement and the transactions contemplated thereby, provided,
however, that (i) Futech's release of Trudy and its stockholder and Trudy and
its stockholder's release of Futech shall not be effective until Janex completes
its acquisition of a majority interest in Trudy, and (ii) Futech's release of
DaMert and its stockholders and DaMert and its stockholders' release of Futech
shall not be effective until Janex completes its acquisition of DaMert.

[Signature Pages Follow]

<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
as of the date first written above by their respective officers thereunto duly
authorized, and each of the Shareholders have executed this Agreement on their
own behalf (or as otherwise indicated).

Futech Interactive Products, Inc., an
Arizona corporation

By: /s/ Vincent W. Goett
------------------------------
Vincent W. Goett, CEO

Futech Interactive Products (Delaware), Inc.,
a Delaware corporation

By: /s/ Vincent W. Goett
------------------------------
Vincent W. Goett, CEO

Futech Toy & Games, Inc., a Nevada
corporation

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

[Signatures Continued]

<PAGE>

Janex International, Inc., a Colorado
corporation

By: /s/ Vincent W. Goett
------------------------------
Vincent W. Goett, President

Trudy Corporation, a Delaware corporation

By: /s/ William W. Burnham
------------------------------
William W. Burnham, Chairman and
CEO

DaMert Company, a California corporation

By: /s/ Frederick A. Damert
------------------------------
Frederick A. DaMert, Chairman

SHAREHOLDERS
DaMert: /s/ Frederick A. Damert
--------------------------
Frederick A. DaMert, Trustee of the DaMert
Trust, UTD September 28, 1998

/s/ Gail Patton Damert
--------------------------
Gail Patton DaMert, Trustee of the DaMert
Trust, UTD September 28, 1998

[Signatures Continued]

<PAGE>

Futech: /s/ Vincent W. Goett
----------------------------
Vincent W. Goett

Trudy: /s/ William W. Burnham
----------------------------
William W. Burnham

[End of Document]

<PAGE>

EXHIBIT 2.3

TERMINATION, RELEASE AND SETTLEMENT AGREEMENT

This Agreement is made this -- day of December, 1999 (the "Effective
Date") by and among Futech Interactive Products, Inc., an Arizona corporation
("Futech"), Fundex Games, Ltd., a Nevada corporation ("Fundex"), Janex
International, Inc., a Colorado corporation ("Janex"), Futech Interactive
Products (Delaware) Inc., a Delaware corporation ("Futech Delaware"), Futech
Toys & Games, Inc., a Nevada corporation ("Futech Nevada"), Vincent W. Goett
("Goett"), Carl E. Voigt, III, and Carl E. Voigt, IV. Futech, Janex, Futech
Delaware, and Futech Nevada are sometimes collectively referred to as the
"Remaining Constituents". Carl E. Voigt, III, and Carl E. Voigt, IV, are
sometimes collectively referred to as the "Fundex Shareholders". Goett is
sometimes referred to as the "Remaining Shareholder".

RECITALS

A. The parties have entered into a certain Merger Agreement dated as of
June 7, 1999 (the "Merger Agreement"), pursuant to which Futech, DaMert Company,
a California corporation ("DaMert"), Trudy Corporation, a Delaware corporation
("Trudy"), and Janex are to merge with and into Futech Delaware and Fundex is to
merge with an into Futech Nevada (such transactions being referred to as the
"Mergers").

B. Fundex and the Fundex Shareholders have formally withdrawn as
participants in the Mergers on December 21, 1999 (the "Withdrawal Date") and the
Remaining Constituents have accepted such withdrawal.

C. As of the Withdrawal Date the parties have orally agreed on their
understanding with respect to the withdrawal of Fundex and the Fundex
Shareholders as participants in the Mergers. The parties now desire to
memorialize such understanding pursuant to this Agreement and to resolve all
other matters or issues with respect to Fundex, Fundex Shareholders and the
Remaining Constituents.

CLAUSES

In consideration of the foregoing and the mutual covenants and
agreements set forth below, the parties agree as follows:

I. TERMINATION OF FUNDEX AND FUNDEX SHAREHOLDERS AS PARTIES TO MERGERS

A. The parties agree that Fundex and the Fundex Shareholders are hereby
terminated as parties to the Mergers and the Merger Agreement, and
that Fundex and the Fundex Shareholders are released from all rights
and obligations under the Merger Agreement as if they were never
parties to such Agreement.

<PAGE>

B. Other than describing the terms of the License Agreement (defined
below), the Remaining Constituents will cause all references to Fundex
and the Fundex Shareholders to be removed from the Merger Agreement
and from any and all documents filed with the Securities and Exchange
Commission or any other governmental agency in connection with any
filings required as a result of the Mergers.

C. As soon as practical after the execution of this Agreement, Futech
will notify the Securities and Exchange Commission that Fundex is no
longer a party to the Mergers and will provide evidence reasonably
acceptable to Fundex that the Securities and Exchange Commission has
been so notified.

II. RELEASE

A. Each of the Remaining Constituents and the Remaining Shareholder
voluntarily and without qualification waives, releases, covenants not
to sue, acquits and forever discharges the Fundex Shareholders,
'Fundex and their officers, directors, shareholders, agents,
employees, heirs, successors, and assigns (the "Fundex Released
Parties") from all claims, demands, actions, liabilities, causes of
action and any other claims for relief, compensation or remuneration
whatsoever, in law or equity, known or unknown (the "Claims"), which
any of them now has, or may have had, relating in any manner to the
Mergers, the Merger Agreement or any other matter involving the
parties which arose on or prior to the Effective Date, whether or not
the Remaining Constituents or the Remaining Shareholder has knowledge
of the same. The parties specifically intend that this Agreement
constitutes a general release of the Fundex Released Parties from any
and all claims, notwithstanding any statute, rule of law, or rule of
judicial construction to the contrary, and that the preceding
constitutes a material inducement to Fundex and the Fundex
Shareholders to enter into this Agreement. The Remaining Constituents
and the Remaining Shareholder agree that this Agreement constitutes a
complete, general release, settlement and compromise of all Claims
against the Fundex Released Parties including, but not limited to: (1)
claims for indemnification, segregation or other obligations arising
pursuant to the interpretation of any law or otherwise; (2) claims
that may arise in the future with respect to the claims, events or
matters already in existence; and (3) unknown claims and/or unlisted
claims, including any Claims under any statute or common law.

B. Each of Fundex and the Fundex Shareholders voluntarily and without
qualification waives, releases, covenants not to sue, acquits and
forever discharges the Remaining Shareholder, Remaining Constituents
and their officers, directors, shareholders, agents, employees, heirs,
successors and assigns (the "Non-Fundex Released Parties") from all
Claims, which any of them now has, or may have had, relating in any
manner to the Mergers, the Merger Agreement or any other matter
involving the parties which arose on or prior to the Effective Date,
whether or not Fundex and the Fundex Shareholders have knowledge of
the same. The parties specifically intend

<PAGE>

that this Agreement constitutes a general release of the Non-Fundex
Released Parties from any and all Claims, notwithstanding any statute,
rule of law, or rule of judicial construction to the contrary, and
that the preceding constitutes a material inducement to the Remaining
Constituents and the Remaining Shareholder to enter into this
Agreement. Fundex and the Fundex Shareholders agree that this
Agreement constitutes a complete, general release, settlement and
compromise of all Claims against the Non-Fundex Released Parties
including, but not limited to: (1) claims for indemnification,
segregation or other obligations arising pursuant to the
interpretation of any law or otherwise; (2) claims that may arise in
the future in respect to the claims, events or matters already in
existence; and (3) unknown claims and/or unlisted claims, including
any claims under any statute or common law.

C. The releases provided in this Agreement do not release any party with
respect to Claims arising as a result of a party's failure to comply
with this Agreement.

D. The Remaining Constituents and the Remaining Shareholder hereby
covenant and agree never to sue Fundex or the Fundex Shareholders on
the basis of any and all claims of any type arising in any way out of
the Merger Agreement or the termination of the participation of Fundex
or the Fundex Shareholders in the Mergers. The Remaining Constituents
and the Remaining Shareholder covenant to use their best efforts to
assure DaMert, Trudy, their officers, shareholders, successors and
assigns never sue Fundex or Fundex's Shareholders on the basis of any
and all claims of any type arising in anyway out of the Merger
Agreement or Termination of Fundex's participation in the Mergers.

III. INDEMNIFICATION

The Remaining Constituents, the Remaining Shareholder their successors and
assigns hereby agree to, jointly and severally, indemnify Fundex and the Fundex
Shareholders and hold Fundex and the Fundex Shareholders harmless from and
against any and all loss, liability, claim, cost, damage and expense whatsoever
(including without limitation any legal and other fees and expenses incurred in
connection with, and any amount paid in settlement of, any claim, action, suit
.or proceeding) arising out of or in any way connected to the Mergers and the
Merger Agreement, including, without limitation, any filings with the Securities
and Exchange Commission or any governmental authority in connection with the
Mergers or any action or Claim against Fundex or the Fundex Shareholders by any
party to the Merger Agreement, including DaMert, Trudy, their shareholders,
officers, successors and assigns.

IV. FUTECH LOAN

Futech has previously loaned to Fundex the sum of Two Hundred Twenty-Five
Thousand Dollars ($225,000) (the "Loan"). In consideration of the Release by
Fundex of the Remaining Constituents and the Remaining Shareholder pursuant to
this Agreement and the other agreements of Fundex pursuant to this Agreement,
and as liquidated damages for any claims which Fundex may have against any of
the Remaining Constituents or Remaining Shareholder, Futech agrees that the

<PAGE>

obligation of Fundex to repay the Loan, including any interest or other charges
accrued on such loan, is hereby forgiven in its entirety. Futech shall return
any executed note evidencing the Loan to Fundex which note will be marked
"Canceled".

V. CERTAIN INVENTORY

A. Fundex is in possession of Wet Pet inventory owned by Futech,, which
inventory was to be marketed by Fundex. Futech agrees that Fundex will
be entitled to retain such inventory and hereby assigns, transfers and
conveys to Fundex free and clear of all liens, claims and
encumbrances, all right, title and interest in such inventory. As
consideration for the transfer of all the inventory to Fundex, Fundex
hereby grants to Futech a credit against future purchases of inventory
from Fundex by Futech in the amount of $50,000. Futech may use such
credit against any purchases of inventory from Fundex during the
twenty four (24) month period beginning on the Effective Date. Any
unused credit will expire upon the expiration of such twenty four (24)
month period. Futech will only be entitled to utilize such credit to
the extent of fifty per. cent (50%) of the purchase price of inventory
purchased from Fundex with respect to any order, until the entire
credit is utilized. A price list is attached hereto and incorporated
herein, Exhibit A.

B. Futech agrees to purchase from Castlespring Enterprises Ltd all
inventory and components related to NASCAR Board Games previously
marketed by Fundex. Fundex agrees that it will no longer market the
NASCAR Board Games.

VI. LICENSE AGREEMENT

Futech and Fundex have entered into a License Agreement dated June 7, 1999
("License Agreement"). Fundex and Futech agree that as soon as practical after
the execution of this Agreement, the License Agreement shall be amended as
follows:

A. All references to the Loan, Merger and Merger Agreement shall be
deleted.

B. Notwithstanding anything in the License Agreement to the contrary,
provided prior written notice, Futech may assign the License Agreement
to Janex.

C. Pursuant to the provisions of Section (a)(ii) of the License
Agreement, the rights licensed to Fundex with respect to certain
Futech Products shall include "Malibu Fun Products" and "Wet Pets
Products", and the License Agreement shall be modified in all respects
to evidence the addition of such additional products. For purposes of
the "Malibu Fun Products" and "Wet Pets Products" Janex is hereby
added as a party to the license agreement and agrees to and is bound
by the terms and provisions of such License Agreement.

D. Fundex will be granted the option to extend the term of the License
for an additional one (1) year upon written notice to Futech on or
before September 30, 2000. Fundex

<PAGE>

will provide Futech with forecasts for items under the license
agreement for the following fiscal year no later than September 30 of
the preceding year. These projections are forecasts and Fundex makes
no representations and warranties that such forecasts will be
achieved. Parties agree not to sue Fundex or Fundex Shareholders for
any reasons with respect to the forecasts.

A. Fundex will agree that all products manufactured by or for Fundex
under the License Agreement will be manufactured by Early Light
International (Holdings) Ltd. ("Early Light") or such other
manufacturer approved by Futech, which approval shall not be
unreasonably withheld. Notwithstanding the foregoing, Fundex is
presently manufacturing certain of the products and has incurred
substantial tooling and other costs in connection with such
manufacturing. In the event that Futech does not consent to the
manufacturer of the products as currently being manufactured by
Fundex, then Futech shall be responsible for and shall pay all tooling
and other costs incurred by Fundex in connection with the manufacturer
of the products at a facility other than the current facility being
utilized by Fundex. Any tooling owned by Futech will be forwarded to
Early Light at Futech's reasonable request.

B. Futech shall have the non-exclusive right to market, distribute and
sell all other products of Fundex (the "Fundex Other Products"),
including but not limited to marketing on the wholesale distribution
portion of the Futech/New Futech Internet site. The Fundex Licensed
Products and the Fundex Other Products are sometimes collectively
referred to in this Section as the "Fundex Products". Fundex agrees
that it will not permit any third party the exclusive right to market
on the Internet the products manufactured by or for Fundex under the
License Agreement, subject to the rights of Fundex to offer or sell
said products on its own Web site. At Futech's cost, Fundex will
provide Futech catalogue artwork and/or photographs on computer media,
including CD Rom."

C. For the Fundex Products which are purchased by Futech, Futech shall
pay Fundex ninety percent (90%) of the wholesale sales price for such
products. For Fundex Products sold through the Futech Internet site,
Fundex shall be compensated by Futech for ordinary and reasonable
costs for fulfillment and shipping costs associated with the shipment
to the consumer. All amounts due from Futech to Fundex shall be
payable within thirty (30) days of Fundex shipping Fundex Products.

D. All amounts payable for third party licenses, (i.e., Jellibies) above
shall be payable directly to Futech (who shall be responsible for all
payments to the original licensor) on a calendar quarterly basis, by
the 254 day following the month to which the payments relate. Amounts
not timely paid shall accrue interest at the rate of eighteen percent
(18%) per annum from the due date until paid in full. Fundex agrees to
pay to Futech $15,000 (minimum royalties) on the Jellabies license. To
the extent the royalties paid to Futech for Jellabies products is less
than Minimum Royalty during the two year license period, Fundex shall
pay the difference between the amount paid to Futech and the Minimum
Royalty within 30 days after the end of the licensing period.

<PAGE>

E. Except as provided for above in this Section, the License Agreement
remains in full force and effect, unmodified, and enforceable pursuant
to its terms.

F. The parties will use reasonable best efforts-to continue jointly
developing new products to be incorporated into the existing License
Agreement upon similar terms.

I. GENERAL

A. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective personal representatives, heirs,
successors and assigns.

B. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Delaware, without giving
effect to the conflicts of law and rules thereof.

C. ARBITRATION

(i) Any controversy or claim between or among the parties hereto,
including but not limited to those arising out of or relating to
this Agreement, shall be determined by binding arbitration in
accordance with the Federal Arbitration Act (or, if not
applicable, the applicable Delaware law), the rules of practice
and procedure for the arbitration of commercial disputes of the
AAA, and the "Special Rules" set forth below. In the event of any
inconsistency, the Special Rules shall control. Judgment upon any
arbitration award may be entered in any court having
jurisdiction. Any party to this Agreement may bring an action,
including a summary or expedited proceeding, to compel
arbitration of any controversy or claim to which this Agreement
applies in any court having jurisdiction over such action.

(ii) Special Rules. The arbitration shall be conducted in Chicago,
Illinois, and administered by AAA, who will appoint an
arbitrator. All arbitration hearings will be commended within
ninety (90) days of the demand for arbitration. Further, the
arbitrator shall only, upon a showing of cause, be permitted to
extend the commencement of such hearing for an additional sixty
(60) days. Notwithstanding any other term of this Agreement, (a)
the party seeking and initiating the arbitration shall advance
funds, as necessary, to institute and conduct the arbitration
procedure; and (b) following a final determination of the matter
submitted to arbitration, the non-prevailing party shall bear,
and shall promptly pay, the cost of the arbitration procedure and
of the reasonable

<PAGE>

costs and expenses, including attorneys' fees, of the prevailing
party.

D. This Agreement may be executed by the parties in one or more
counterparts, and any number of counterparts signed in the aggregate
by the parties will constitute a single instrument. If the parties
agree to accept facsimile signatures and counterparts to this
Agreement facsimile signatures will for all purposes be binding upon
the parties.

E. All press releases regarding this Agreement and the relationship among
the parties will be reasonably approved by the other party prior to
issuance.

F. Fundex shall promptly file a trademark assignment assigning to Futech
its rights, if any, to the trademarks "Tracksounds" and "Soundzone".

FUTECH INTERACTIVE PRODUCTS, INC.
an Arizona Corporation

By: /s/ Vincent Goett
Its: __________________

FUTECH GAMES, LTD.
a Nevada Corporation

By: /s/ Carl E. Voigt, Iv
Its: __________________

JANEX INTERNATIONAL, INC.
a Colorado Corporation

By: /s/ Vincent Goett
Its: __________________

FUTECH INTERACTIVE PRODUCTS (DELAWARE), INC.
a Delaware Corporation

By: /s/ Vincent Goett
Its: __________________

<PAGE>

FUTECH TOYS AND GAMES, INC.
a Nevada Corporation

By: /s/ Carl E. Voigt, IV
Its: __________________

/s/ Vincent Goett
---------------------
Vincent Goett

/s/ Carl E. Voigt, III
---------------------
Carl E. Voigt, III

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

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

1) With Design in Mind, a California corporation, a wholly-owned subsidiary

2) Janex Corporation, a New Jersey corporation, a wholly-owned subsidiary

3) Pro Gains Company Limited, a Hong Kong corporation 50% owned by the Company
and 50% owned by Janex

4) Malibu Fun Stuffed, Inc., a California corporation, a wholly-owned
subsidiary

5) Malibu Fun Stuffed International Limited, a Hong Kong corporation 99% owned
by Malibu Fund Stuffed, Inc. and 100% owned by the Company

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,920
<SECURITIES> 0
<RECEIVABLES> 78,920
<ALLOWANCES> 22,942
<INVENTORY> 0
<CURRENT-ASSETS> 144,204
<PP&E> 3,025
<DEPRECIATION> 270,662
<TOTAL-ASSETS> 417,891
<CURRENT-LIABILITIES> 3,466,961
<BONDS> 0
0
569,022
<COMMON> 12,803,507
<OTHER-SE> (16,421,599)
<TOTAL-LIABILITY-AND-EQUITY> 417,891
<SALES> 283,995
<TOTAL-REVENUES> 283,995
<CGS> 311,508
<TOTAL-COSTS> 1,725,009
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,230
<INCOME-PRETAX> (1,463,392)
<INCOME-TAX> 6,925
<INCOME-CONTINUING> (1,470,317)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,470,317)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)

</TABLE>