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

FORM 10-K
(MARK ONE)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM

--------------- TO ---------------

COMMISSION FILE NUMBER 0-28104

JAKKS PACIFIC, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

22761 PACIFIC COAST HIGHWAY
MALIBU, CALIFORNIA 90265
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 456-7799

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------

NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

TITLE OF CLASS

COMMON STOCK, $.001 PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as 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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting and non-voting common equity (the
only such common equity being Common Stock, $.001 par value) held by
non-affiliates of the registrant (computed by reference to the closing sale
price of the Common Stock on March 27, 2000) is $376,042,973.

The number of shares outstanding of the registrant's Common Stock, $.001
par value (being the only class of its common stock) is 19,332,806 (as of March
27, 2000).

DOCUMENTS INCORPORATED BY REFERENCE

None.

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JAKKS PACIFIC, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

ITEMS IN FORM 10-K

PAGE
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.................................. 16
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 25
Item 8. Financial Statements and Supplementary Data................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 47

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 47
Item 11. Executive Compensation...................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 52
Item 13. Certain Relationships and Related Transactions.............. 53
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 53

Signatures............................................................ 58

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

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ITEM 1. BUSINESS

In this report, "JAKKS," the "Company," "we," "us" and "our" refer to JAKKS
Pacific, Inc. and its subsidiaries.

COMPANY OVERVIEW

JAKKS is a Delaware corporation which was formed in January 1995 and began
operations as of April 1, 1995. We are a multi-line, multi-brand toy company
that designs, develops, produces and markets toys and related products. Our
principal products are (1) action figures and accessories featuring licensed
characters, principally from the World Wrestling Federation, (2) Flying Colors
molded plastic activity sets, clay compound playsets and lunch boxes, (3) Wheels
division products, including Road Champs die-cast collectible and toy vehicles
and Remco toy vehicles and role-play toys and accessories, (4) Child Guidance
infant and pre-school electronic toys, toy foam puzzle mats and blocks, activity
sets and outdoor products and (5) fashion and mini dolls and related
accessories. We focus our business on evergreen branded products that are less
subject to market fads or trends and feature well-known brand names and simpler,
lower-priced toys and accessories.

We formed our joint venture with THQ in June 1998 to develop, manufacture
and market, under an exclusive license with World Wrestling Federation
Entertainment, video games based on World Wrestling Federation characters and
themes. The joint venture's first products were released in November 1999.

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

We license much of the intellectual property we use in our business. We
license the World Wrestling Federation trademark, as well as numerous other
trademarks, corporate, trade and brand names and logos, from third parties,
including Car and Driver, Schwinn, GT, Haro, Rod & Custom, Barbie, Rugrats,
Blue's Clues, Mickey Mouse, Barney, Teletubbies, Sesame Street, Looney Tunes and
Toy Story 2. This enables us to use high-profile marks at a lower cost than that
which we would incur if we purchased these marks or developed comparable marks
on our own. By licensing marks, we have access to a far greater range of marks
than those that would be available for purchase, and we maintain the flexibility
to acquire newly-popular marks and to discontinue our use of marks whose
popularity or value has faded. We also license technology produced by
unaffiliated inventors and product developers to improve the design and
functionality of our products. We believe that our experience in the toy
industry, our flexibility and our recent success in developing and marketing
products make us more attractive to toy inventors and developers.

Most of our current products are relatively simple and inexpensive toys. We
believe that these products have proven to have enduring appeal and are less
subject to general economic conditions, toy product fads and trends, changes in
retail distribution channels and other factors. In addition,

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the simplicity of these products enables us to choose among a wider range of
manufacturers and affords us greater flexibility in product design, pricing and
marketing.

We sell our products through our in-house sales staff and independent sales
representatives. Purchasers of our products include toy and mass-market retail
chain stores, department stores, toy specialty stores and wholesalers. The Road
Champs and Flying Colors products are also sold to smaller hobby shops,
specialty retailers and corporate accounts, among others. Our five largest
customers are Toys 'R Us, Wal-Mart, Kmart, Kay Bee Toys and Target, each of
which accounted for at least 8% of our net sales in 1999. We also sell through
e-commerce sites, including Toysrus.com, Amazon.com and eToys.com.

INDUSTRY OVERVIEW

According to the Toy Manufacturers of America, Inc. (the TMA), the leading
industry trade group, total manufacturers' shipments of toys, excluding video
games, in the U.S., were approximately $16.9 billion in 1999. According to the
TMA, the United States is the world's largest toy market, followed by Japan and
Western Europe. Sales by U.S. toy manufacturers to non-U.S. customers totaled
approximately $5.5 billion in 1998. We believe the two largest U.S. toy
companies, Mattel and Hasbro, collectively hold a dominant share of the domestic
non-video toy market. In addition, hundreds of smaller companies compete in the
design and development of new toys, the procurement of character and product
licenses, and the improvement and expansion of previously-introduced products
and product lines. In the video game segment, manufacturers' shipments of video
game software were approximately $3.2 billion in 1999.

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

OUR GROWTH STRATEGY

- EXPAND CORE PRODUCTS

We manage our existing and new brands through strong product development
initiatives, including introducing new products, modifying existing products and
extending existing product lines. Our product designers strive to develop new
products or product lines to offer added technological, aesthetic and functional
improvements to our product lines. In October 1999, we introduced an interactive
wrestling action figure which has the ability to accept voice downloads from the
World Wrestling Federation web site.

- ENTER NEW PRODUCT CATEGORIES

We will continue to use our extensive experience in the toy industry to
evaluate toys and licenses in new product categories and to develop additional
product lines. We have entered the video game market through our participation
in a joint venture with THQ. The joint venture launched its line of World
Wrestling Federation licensed video games in November 1999.

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- CONTINUE TO PURSUE STRATEGIC ACQUISITIONS

Since our inception, we have successfully concluded and integrated five
acquisitions. These include our Road Champs, Remco, Child Guidance, Berk and
Flying Colors products. We will continue focusing our acquisition strategy on
businesses or brands which offer valuable trademarks or brands and have
compatible product lines.

- ACQUIRE ADDITIONAL CHARACTER AND PRODUCT LICENSES

We have acquired the rights to use many familiar corporate, trade and brand
names and logos from third parties that we use with our primary trademarks and
brands. Currently, we have license agreements with World Wrestling Federation
Entertainment, Nickelodeon, Disney, Mattel, Caterpillar, Peterson Publishing Co.
and B.A.S.S. Masters, as well as with the licensors of the many popular licensed
children's characters previously mentioned. We intend to continue to pursue new
licenses from these entertainment and media companies and other licensors. We
also intend to continue to purchase additional inventions and product concepts
through our existing network of product developers.

- EXPAND INTERNATIONAL SALES

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

- CAPITALIZE ON OUR OPERATING EFFICIENCIES

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

PRODUCTS

WORLD WRESTLING FEDERATION ACTION FIGURES AND ACCESSORIES

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

Following the launch of the action figures, we marketed wrestling ring play
sets and microphones with action background sounds to enhance the play value of
the action figures. Since then, we have continually added new products,
including action figures of varying sizes, such as three-inch sets with
wrestling rings, amplifying microphones, seven-inch collector's editions, large
soft body figures and small bean-bag figures with electronic sound chips of the
popular wrestlers'

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catch phrases and in-ring banter. Building on the popularity of World Wrestling
Federation and its wrestlers, we have continued to develop the line with
exciting and innovative technological and functional concepts to enhance the
value of the line.

In 1999, we introduced a line of 12-inch interactive figures that has
created a new category of toys in the industry. The line was launched with a
figure based on a World Wrestling Federation World Champion, "Stone Cold Steve
Austin." The figures in the line are capable of accepting daily downloads of
sound bites from a World Wrestling Federation web site, to which we contribute
content compatible with our toy products. Another technological innovation added
in 1999 is the "Titan Tron," featuring sensor-based technology that enables this
playset to recognize the character of specially-equipped wrestling figures in
order to play the wrestler's unique theme music and display his picture with
flashing lights. In 2000, the sensor-based technology will be added to other
products based on real elements of the live wrestling shows, like back stage, to
further expand the play pattern of wrestling. Other enhancements to the World
Wrestling Federation product line include a sweating functionality in the
"Maximum Sweat" line of action figures where the figures, when filled with
water, "sweat" from the brow and chest, adding more realism and play value to
the line. In 2000, technology will again be added to the figures giving them
more realism with multiple sensored joints that when moved activate sound chips
containing real sound bites of the wrestlers. The various World Wrestling
Federation products retail from $5.99 to $49.99.

FLYING COLORS ACTIVITY SETS, CLAY COMPOUND PLAYSETS AND LUNCH BOXES

Through our acquisition of Flying Colors Toys we entered into the toy
activity category with plastic molded activity cases containing a broad range of
activities, such as make and paint your own characters, jewelry making, art
studios, posters, puzzles and other projects. These sets include all of the
materials needed for each activity, including paints, markers, stampers and
crayons. The cases, with molded and painted likenesses of popular characters,
such as Barbie, Nickelodeon's Rugrats and Blue's Clues, Looney Tunes, Hello
Kitty and Scooby Doo, have immediate visual appeal. Using a related production
technology, our lunch boxes complement this line with similarly-styled molded
and painted likenesses featuring these and other popular characters. Other
products offered by Flying Colors include stationery, back-to-school pens,
pencils and notebooks, party favors and molding compounds.

Our molding compounds present a new area of emphasis for Flying Colors.
Launched under the Blue's Clues license, this line has expanded from play clay
in a bucket to an entire Blue's Clues playset featuring book molds, extrusion
and other devices. We are continuing to expand the compound area and expect to
introduce innovative compounds with and without licensed characters or marks.

WHEELS DIVISION PRODUCTS

- Road Champs die-cast collectible and toy vehicles

The Road Champs product line consists of highly-detailed, die-cast replicas
of new and classic cars, trucks, motorcycles, emergency vehicles and service
vehicles, primarily in 1/43 scale (including police cars, fire trucks and
ambulances), buses and aircraft (including propeller planes, jets and
helicopters). As a part of the Road Champs acquisition in February 1997, we
acquired the right to produce the Road Champs line of die-cast and collectible
vehicle replicas, including various well-known vehicles from Ford, Chevrolet and
Jeep, as well as the right to use familiar corporate names on the die-cast
vehicles, such as Pepsi and Hershey. Recently, we licensed the right to

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reproduce vehicles featured on the covers of automotive magazines, such as Rod &
Custom and Car and Driver, and to market vehicles with the B.A.S.S. Masters logo
and replicas of the World Wrestling Federation Attitude Racing NHRA Team. We
believe that these licenses increase the perceived value of the products and
enhance their marketability. Under the terms of these licenses, which expire on
various dates through May 10, 2001 (many of which include automatic annual
extensions without affirmative action taken by either party), we pay the
licensor a royalty based on our sales of each product bearing such licensed
name. While we are not required to pay any royalty on some of the products, the
royalties on a majority of the products range from 1% to 9% of sales. The Road
Champs products are produced by unaffiliated foreign manufacturers. These
products are sold individually, retailing from $2.99 to $7.99 each, and in
playsets which retail from $9.99 to $24.99 each.

We have divided the markets of this product line into adult collectible and
children's toy segments, recognizing the specific needs of these different
consumers. Each collector product features a collector case in which to store
and display the vehicle and a certificate of authenticity. We produce a limited
number, generally not more than 10,000, of each distinctive product to enhance
its collectibility. This line presently has numerous themes, including
Anniversary Collection, Police, Then & Now, World War II Fighter Planes and
Classics Scenes, with die-cast scenic accessories, such as 1950's soda machines
or gas pumps. The toy segment is marketed by focusing on size and value with its
slogan "Crankin' It Up." Our die-cast vehicles are 1/43 scale, which are larger
than most other competing die-cast vehicles. The size appeals to collectors,
since it enables us to show greater detail on the vehicles, and to children and
their parents, who perceive a greater value in the larger size. The toys are
packaged on two-pack blister cards, further highlighting the value. In addition,
series were created to encourage children to collect our vehicles. Our toy
vehicle line has been expanded to include 1/64 scale cars featuring new
functionality that allows the consumer to adjust the vehicle's suspension for
different terrain. Initially, the cars will include new sports cars such as the
2000 Corvette, Ford GT 90 and Porsche 959.

- BXS die-cast collectible and toy bicycles

In 1999, we introduced a new line of die-cast bicycles called BXS. These
BMX-style bicycles feature removable and interchangeable parts for complete
customization by users as well as working cranks. To enhance collectibility, we
created a patent-pending trickstick in several different styles which allows the
user to perform signature moves like professional cyclists and to navigate
stairs, half-pipes and ramps. Certain elements of the playsets will contain
pressure points that will activate sound chips containing real BXS bike event
sounds, such as crowd cheers, music riffs and announcers. We have licensed the
Schwinn, GT and Haro brand names, as well as the names of some of the top
riders, such as Dave Mirra and Ryan Nyquist, for use in connection with this
product line. In 2000, we will be adding fully-articulated action figures of
these and other free-style riders that will ride their signature edition bikes.
Bicycles are sold individually and in sets that include accessories.

- Remco toy vehicles and role play

Our Remco toy line includes toy vehicles, role play and other toys. Our toy
vehicle line is comprised of a large assortment of rugged die-cast and plastic
vehicles. Marketed under a sub-brand called Tuff Ones, our toy vehicles range in
size from 4 3/4 inch to big-wheeled 17 inch vehicles. We have revitalized them
considerably by creating new packaging, redecorating the vehicles and adding
highly-recognized licensed names, such as NASA, Pennzoil, U-Haul and Castrol,
among others. The breadth of the line is extensive, with themes ranging from
emergency,

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fire, farm and construction, to racing and jungle adventure. In late 1999, we
will be expanding our Remco vehicle line by adding an innovative line of trucks
called Talkin' Tuff Guys, which allows children to bring construction vehicles
to life with the real sounds of construction.

We offer a variety of branded and non-branded role playsets in this new
category under the Remco name. Themes include Caterpillar construction, B.A.S.S.
Masters fishing, police, fire and NASA. Role play sets retail from $6.99 to
$12.99 each. Additionally, capitalizing on the popularity of World Wrestling
Federation, we will be introducing a World Wrestling Federation role play
product which will give children the opportunity to dress like and imagine being
their favorite wrestling superstars.

We market Remco "Fight Back Action Fishing Poles" under the B.A.S.S.
Masters license for fun with simulated fishing action. These fishing poles
retail for $12.99.

CHILD GUIDANCE

- Infant and pre-school toys

We acquired the Child Guidance trade name in 1997 to accelerate our entry
into the infant/ pre-school toy category. This category has been recently
dominated by higher-priced licensed products, which creates an opportunity for
us to sell our lower price, high value line of pre-school toys. Our line of
pre-school electronic toys features products that enhance sensory stimulation
and learning through play, while offering value to the trade as well as to the
consumer. Our products are designed for children ages two and under. We have
combined the fun of music, lights, motion and sound with the early introduction
of numbers, letters, shape and color recognition, all at a value price. The line
consists of more than 50 products that are marketed in continually updated "try
me" interactive packaging that allows the consumers to sample the product prior
to purchase. We support the products with extensive advertising in popular
magazines and other publications, focusing on parenting, women's and family
publications, including Good Housekeeping. These products carry the Good
Housekeeping Seal of Approval(R). Our current products include the Wiggle Waggle
Caterpillar and Musical Pony pull-along toys, which were introduced in 1998.
Other 1998 noteworthy products include Musical Magnets, which were recognized as
one of the top toys of the year by Sesame Street Parent Magazine. In 1999, we
have extended the Wiggle Waggle line to include the Wiggle Waggle Duck, which
features spinning action. We have added approximately 30 other new products to
the line in 1999, including Talking Phonics Blocks and Talking Sentence Magnets.
We have recently expanded the distribution of the Child Guidance products to
include more upscale and specialty retailers. Child Guidance products are priced
at retail from $2.99 to $14.99.

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

- Foam puzzle mats and playsets

The acquisition of Berk added the foam toy category to our business. We
incorporated this new toy category into our Child Guidance product line, based
on the demographics and target

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market for foam toy products. This new line further expands the breadth of our
Child Guidance brand. The foam toy products include puzzle mats featuring
licensed characters, such as Winnie the Pooh, Blue's Clues, Barney, Teletubbies
and Sesame Street, among others, as well as letters of the alphabet and numbers.
The inter-locking puzzle pieces can also be used to build houses and other play
areas. Other products include foam puzzles of the United States, foam vehicles
and outdoor foam products. In 1999, we introduced three-dimension, mechanism and
sound elements to this line.

FASHION AND MINI DOLLS AND RELATED ACCESSORIES

We produce various proprietary fashion dolls and accessories for children
between the ages of three and 10. The product lines include: (1) 11 1/2 inch
fashion dolls customized with high-fashion designs that correspond with
particular holidays, events or themes, such as Christmas, birthdays, Fairytale,
Victorian Romance and Gibson Girl Romance; and (2) 6 1/2 inch fashion dolls
based on children's classic fairy tales and holidays. In 2000, we intend to add
to our doll line by producing additional dolls based on the fashion magazine
Elle. These 15 1/2 inch dolls will feature contemporary fashions.

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

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

WORLD WRESTLING FEDERATION VIDEO GAMES

In June 1998, we formed a joint venture with THQ, a developer, publisher
and distributor of interactive entertainment software for the leading hardware
game platforms in the home video game market. The joint venture entered into a
license agreement with World Wrestling Federation Entertainment under which it
acquired the exclusive worldwide right to publish World Wrestling Federation
video games on all hardware platforms. The games will be designed, developed,
manufactured and marketed by the joint venture. We are entitled to receive a
guaranteed preferred return, based on sales of the video games, and THQ is
entitled to receive the balance of the profits. The term of the license
agreement expires on December 31, 2009, subject to a right of the joint venture
to renew the license for an additional five years under various conditions.

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

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Sony PlayStation accounted for a substantial portion of the installed base of
all hardware platforms and software sales in 1998.

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

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

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

SALES, MARKETING AND DISTRIBUTION

We sell all of our products through our own in-house sales staff and
independent sales representatives. Purchasers of our products include toy and
mass-market retail chain stores, department stores, toy specialty stores and
wholesalers. The Road Champs and Flying Colors product lines are also sold to
smaller hobby shops, specialty retailers and corporate accounts, among others.
Our five largest customers are Toys 'R Us, Wal-Mart, Kmart, Kay Bee Toys and
Target, which accounted for approximately 69.6% of our net sales in 1998 and
70.2% of our net sales in 1999. Except for purchase orders relating to products
on order, we do not have written agreements with our customers. Instead, we
generally sell products to our customers pursuant to letters of credit or, in
some cases, on open account with payment terms typically varying from 30 to 90
days. From time to time, we allow our customers credits against future purchases
from us in order to facilitate their retail markdown and sales of slow-moving
inventory. We also sell through e-commerce sites, including Toysrus.com,
Amazon.com and eToys.com.

We contract the manufacture of most of our products to unaffiliated
manufacturers located in China. We sell the finished products on a letter of
credit basis or on open account to our customers,

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who take title to the goods in Hong Kong. These methods allow us to reduce
certain operating costs and working capital requirements. A portion of our
sales, primarily sales of our Road Champs and Flying Colors products, originate
in the United States, so we hold certain inventory in warehouse and fulfillment
facilities operated by unaffiliated third parties. In addition, we hold
inventory of other products from time to time in support of promotions or other
domestic programs with retailers. To date, substantially all of our sales have
been to domestic customers. We intend to expand distribution of our products
into foreign territories and, accordingly, we have (1) engaged representatives
to oversee sales in certain territories, (2) engaged distributors in certain
territories, and (3) established direct relationships with retailers in certain
territories.

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

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

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

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

Outside of the United States, we currently sell our products primarily in
Canada, Great Britain, Latin America, Australia, Japan and South Africa. Sales
of our products abroad accounted for approximately $6.3 million, or 7.4% of our
net sales, in 1998 and approximately $13.1 million, or 7.1% of our net sales, in
1999. We believe that foreign markets present an attractive opportunity, and we
plan to intensify our marketing efforts and expand our distribution channels
abroad.

PRODUCT DEVELOPMENT

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

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the development process takes from three to nine months to culminate in
production of the products for shipment to our customers.

We employ a staff of approximately 20 designers for our Flying Colors
product lines. We generally acquire our other product concepts from unaffiliated
third parties. If we accept and develop a third party's concept for new toys, we
generally pay a royalty on the toys developed from this concept that are sold,
and may, on an individual basis, guarantee a minimum royalty. Royalties payable
to developers generally range from 1% to 6% of the wholesale sales price for
each unit of a product sold by us. We believe that utilizing experienced
third-party inventors gives us access to a wide range of development talent. We
currently work with numerous toy inventors and designers for the development of
new products and the enhancement of existing products. We believe that toy
inventors and designers have come to appreciate our practice of acting quickly
and decisively to acquire and market licensed products. In addition, we believe
that our experience in the toy industry, our flexibility and our recent success
in developing and marketing products make us more attractive to toy inventors
and developers than some of our competitors.

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

MANUFACTURING AND SUPPLIES

Our products are currently produced by manufacturers which we choose on the
basis of quality, reliability and price. Consistent with industry practice, the
use of third-party manufacturers enables us to avoid incurring fixed
manufacturing costs. All of the manufacturing services performed overseas for us
are paid for either by letter of credit or on open account with the
manufacturers. To date, we have not experienced any material delays in the
delivery of our products; however, delivery schedules are subject to various
factors beyond our control, and any delays in the future could adversely affect
our sales. Currently, we have ongoing relationships with approximately 20
manufacturers. We believe that alternative sources of supply are available,
although we cannot assure you that adequate supplies of manufactured products
can be obtained.

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

The principal raw materials used in the production and sale of our toy
products are zinc alloy, plastics, plush, printed fabrics, paper products and
electronic components, all of which are currently available at reasonable prices
from a variety of sources. Although we do not manufacture our products, we own
the molds and tooling used in the manufacturing process, and these are
transferable among manufacturers if we choose to employ alternative
manufacturers. Molds and tooling represents substantially all of our long-lived
assets, and amounted to $3.0 million in 1997, $3.4 million in 1998 and $10.3
million in 1999. Substantially all of these assets are located in China.

TRADEMARKS AND COPYRIGHTS

Most of our products are produced and sold under trademarks owned by or
licensed to us. We typically register our properties, and seek protection under
the trademark, copyright and patent laws of the United States and other
countries where our products are produced or sold. These intellectual

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property rights can be significant assets. Accordingly, while we believe we are
sufficiently protected, the loss of some of these rights could have an adverse
effect on our business, financial condition and results of operations.

COMPETITION

Competition in the toy industry is intense. Many of our competitors have
greater financial resources, larger sales and marketing and product development
departments, stronger name recognition and longer operating histories and
benefit from greater economies of scale. These factors, among others, may enable
our competitors to market their products at lower prices or on terms more
advantageous to customers than those we could offer for our competitive
products. Competition often extends to the procurement of entertainment and
product licenses, as well as to the marketing and distribution of products and
the obtaining of adequate shelf space. Competition may result in price
reductions, reduced gross margins and loss of market share, any of which could
have a material adverse effect on our business, financial condition and results
of operations. In each of our product lines we compete against one or both of
the toy industry's two dominant companies, Mattel and Hasbro. In addition, we
compete, in our action figures line, with the Toy-Biz division of Marvel
Enterprises, in our Flying Colors product categories, with Rose Art Industries,
Hasbro (Play-doh), Binney & Smith (Crayola) and, in our toy vehicle lines, with
Racing Champions. We also compete with numerous smaller domestic and foreign toy
manufacturers, importers and marketers in each of our product categories. We
expect that the joint venture's principal competition in the video game market
will be Electronic Arts, which will produce video games based on World
Championship Wrestling characters, and Acclaim Entertainment.

SEASONALITY AND BACKLOG

Sales of toy products are seasonal. In 1999, approximately 66.8% our net
sales were made in the third and fourth quarters. Generally, the first quarter
is the period of lowest shipments and sales in our business and the toy industry
generally and therefore the least profitable due to various fixed costs.
Seasonality factors may cause our operating results to fluctuate significantly
from quarter to quarter. Due to these fluctuations, our results of operations
for any quarter may vary significantly. Our results of operations may also
fluctuate as a result of factors such as the timing of new products (and
expenses incurred in connection therewith) introduced by us or our competitors,
the advertising activities of our competitors, delivery schedules set by our
customers and the emergence of new market entrants. We believe, however, that
the low retail price product lines that we sell may be less subject to seasonal
fluctuations than higher priced toy products.

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

GOVERNMENT AND INDUSTRY REGULATION

Our products are subject to the provisions of the Consumer Product Safety
Act ("CPSA"), the Federal Hazardous Substances Act ("FHSA"), the Flammable
Fabrics Act ("FFA") and the regulations promulgated thereunder. The CPSA and the
FHSA enable the Consumer Product Safety Commission to exclude from the market
consumer products that fail to comply with applicable product safety regulations
or otherwise create a substantial risk of injury, and articles that contain

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excessive amounts of a banned hazardous substance. The FFA enables the Consumer
Products Safety Commission to regulate and enforce flammability standards for
fabrics used in consumer products. The Consumer Products Safety Commission may
also require the repurchase by the manufacturer of articles which are banned.
Similar laws exist in some states and cities and in various international
markets. We maintain a quality control program designed to ensure compliance
with all applicable laws. In addition, many of our Child Guidance products are
sold under the Good Housekeeping Seal of Approval(R). To qualify for this
designation, our products are tested by Good Housekeeping to ensure compliance
with its product safety and quality standards.

EMPLOYEES

As of March 27, 2000, we employed 140 persons, all of whom are full-time
employees, including three executive officers. One hundred of our employees were
located in the United States, while the remaining 40 were located in Hong Kong.
We believe that we have good relationships with our employees. None of our
employees is represented by a union.

ENVIRONMENTAL ISSUES

We are subject to legal and financial obligations under environmental,
health and safety laws in the United States and in other jurisdictions where we
operate. We are not currently aware of any material environmental liabilities
associated with any of our operations.

ITEM 2. PROPERTIES

Our principal executive offices occupy approximately 9,000 square feet of
space in Malibu, California under a lease expiring on August 31, 2002. We have
entered into a seven year lease for approximately 17,000 square feet of
additional office space in Malibu, California which will contain our principal
executive offices upon commencement of the lease in the third quarter of 2000.
We lease office space of approximately 7,500 square feet in Dexter, Michigan
where the operations of Flying Colors Toys are headquartered. We lease showroom
and office space of approximately 8,000 square feet at the International Toy
Center in New York City. We also have leased office and showroom space of
approximately 5,000 square feet in Hong Kong from which we oversee our
China-based third-party manufacturing operations and 15,000 square feet in
Ontario, California, and we have a smaller leased site in Dallas, Texas. We
believe that our facilities in the United States and Hong Kong are adequate for
our reasonably foreseeable future needs.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to, nor is any of our property the subject of, any
pending legal proceeding, nor are we aware of any proceeding contemplated by any
governmental authority.

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

No matter was submitted during the fourth quarter of 1999 to a vote of our
security holders.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

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

PRICE RANGE OF
COMMON STOCK
------------------
HIGH LOW
----- -----

1998:
First quarter............................................. 6.58 4.75
Second quarter............................................ 8.50 5.17
Third quarter............................................. 8.96 4.75
Fourth quarter............................................ 7.58 4.67
1999:
First quarter............................................. 13.67 7.00
Second quarter............................................ 19.92 12.17
Third quarter............................................. 26.83 15.50
Fourth quarter............................................ 29.33 16.13

On March 27, 2000, the last sale price of our common stock reported on the
Nasdaq National Market was $20.06 per share.

SECURITY HOLDERS

As of March 27, 2000, there were approximately 91 holders of record of our
common stock.

DIVIDENDS

We have never paid any cash dividends on any of our common stock. We intend
to retain our future earnings, if any, to finance the growth and development of
our business, and, accordingly, we do not plan to pay any cash dividends on our
common stock in the foreseeable future.

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ITEM 6. SELECTED FINANCIAL DATA

You should read the financial data set forth below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and our consolidated financial statements and the related notes
(included in Item 8).

APRIL 1, 1995
(INCEPTION) TO
DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------- --------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................... $6,078 $12,052 $41,945 $85,253 $183,685
Cost of sales........................................... 4,131 7,231 25,875 52,000 107,602
------ ------- ------- ------- --------
Gross profit............................................ 1,947 4,821 16,070 33,253 76,083
Selling, general and administrative expenses............ 1,400 3,612 11,895 24,007 51,154
------ ------- ------- ------- --------
Income from operations.................................. 547 1,209 4,175 9,246 24,929
Income from Joint Venture............................... -- -- -- -- (3,605)
Interest, net........................................... 8 (134) 418 423 (1,588)
Other (income) expense.................................. (12) -- 328 591 (182)
------ ------- ------- ------- --------
Income before provision for income taxes................ 551 1,343 3,429 8,232 30,304
Provision for income taxes.............................. 115 163 643 1,857 8,334
------ ------- ------- ------- --------
Net income.............................................. $ 436 $ 1,180 $ 2,786 $ 6,375 $ 21,970
====== ======= ======= ======= ========
Basic earnings per share................................ $ 0.15 $ 0.24 $ 0.40 $ 0.75 $ 1.55
====== ======= ======= ======= ========
Weighted average shares outstanding..................... 3,000 4,927 6,932 8,539 13,879
====== ======= ======= ======= ========
Diluted earnings per share.............................. $ 0.13 $ 0.22 $ 0.35 $ 0.59 $ 1.39
====== ======= ======= ======= ========
Weighted average shares and equivalents outstanding..... 3,287 5,256 9,013 11,403 15,840
====== ======= ======= ======= ========

AT DECEMBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 82 $ 6,355 $ 2,536 $12,452 $ 57,546
Working capital (deficit)...................... (621) 7,824 3,368 13,736 113,170
Total assets................................... 4,128 14,200 43,605 58,736 232,878
Long-term debt, net of current portion......... 613 -- 6,000 5,940 9
Total stockholders' equity..................... 1,850 11,746 25,959 37,754 187,501

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

The following Management's Discussion and Analysis of Financial Condition
and Results of Operation contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors.
You should read this section in conjunction with our consolidated financial
statements and the related notes (included in Item 8).

OVERVIEW

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

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

We acquired Road Champs in February 1997, and have included the results of
operations of Road Champs from February 1, 1997, the effective date of the
acquisition. We acquired the Child Guidance and Remco trademarks in October
1997, both of which contributed to operations nominally in 1997, but contributed
more significantly to operations commencing in 1998. We acquired Berk in June
1999 and have included the results of operations of Berk since June 29, 1999. In
October 1999, we acquired Flying Colors Toys. The Flying Colors product lines
contributed to operations beginning in the fourth quarter of 1999.

Our products currently include (1) action figures and accessories featuring
licensed characters, principally from the World Wrestling Federation, (2) Flying
Colors molded plastic activity sets, clay compound playsets and lunch boxes, (3)
Wheels division products, including Road Champs die-cast collectible and toy
vehicles and Remco toy vehicles and role-play toys and accessories, (4) Child
Guidance infant and pre-school electronic toys, toy foam puzzle mats and blocks,
activity sets and outdoor products and (5) fashion and mini dolls and related
accessories.

In June 1998, we formed a joint venture with THQ, a developer, publisher
and distributor of interactive entertainment software, and the joint venture
licensed the rights from World Wrestling Federation Entertainment to publish
World Wrestling Federation electronic video games on all platforms. The first
games produced under this license were released in November 1999. We are
entitled to receive a guaranteed preferred return, based on sales of the video
games, and THQ is entitled to receive the balance of the profits.

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

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

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

Selling, general and administrative expenses include costs directly
associated with the selling process, such as sales commissions, advertising and
travel expenses, as well as general corporate expenses, goodwill and trademark
amortization and product development. We have recorded goodwill of approximately
$47.4 million and trademarks of approximately $13.9 million in connection with
acquisitions made to date. Goodwill is being amortized over a 30-year period,
while trademark acquisition costs are being amortized over periods ranging from
10 to 30 years.

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RESULTS OF OPERATION

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

APRIL 1, 1995
(INCEPTION) TO
DECEMBER 31, YEARS ENDED DECEMBER 31,
---------------- --------------------------------
1995 1996 1997 1998 1999

Net sales............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................ 68.0 60.0 61.7 61.0 58.6
----- ----- ----- ----- -----
Gross profit......................... 32.0 40.0 38.3 39.0 41.4
Selling, general and administrative
expenses........................... 23.0 30.0 28.4 28.2 27.8
----- ----- ----- ----- -----
Income from operations............... 9.0 10.0 9.9 10.8 13.6
Income from joint venture............ -- -- -- -- (2.0)
Interest, net........................ 0.1 (1.1) 1.0 0.4 (0.9)
Other (income) expense............... (0.2) -- 0.7 0.7 --
----- ----- ----- ----- -----
Income before income taxes........... 9.1 11.1 8.2 9.7 16.5
Provision for income taxes........... 1.9 1.3 1.6 2.2 4.5
----- ----- ----- ----- -----
Net income........................... 7.2% 9.8% 6.6% 7.5% 12.0%
===== ===== ===== ===== =====

YEARS ENDED DECEMBER 31, 1999 AND 1998

Net Sales. Net sales increased $98.4 million, or 115.5%, to $183.7 million
in 1999 from $85.3 million in 1998. The significant growth in net sales was due
primarily to the continuing growth of the World Wrestling Federation action
figure product line with its expanded product offerings and frequent character
releases, as well as to increasing sales in our Wheels division, consisting
primarily of our Road Champs die-cast toy and collectible vehicles, fashion and
holiday dolls and Child Guidance pre-school toys and the addition of Berk
products, which contributed nominally to operations beginning in the third
quarter of 1999 and Flying Colors products, which contributed moderately to
operations beginning in the fourth quarter of 1999.

Gross Profit. Gross profit increased $42.8 million, or 128.8%, to $76.1
million, or 41.4% of net sales, in 1999 from $33.3 million, or 39.0% of net
sales, in 1998. The overall increase in gross profit was attributable to the
significant increase in net sales. The increase in the gross profit margin of
2.4% of net sales was due in part to the changing product mix, which included
products, such as World Wrestling Federation action figures and BXS die-cast
bicycles, with higher margins than some of our other products, and the
amortization expense of molds and tools used in the manufacture of our products,
which decreased on a percentage basis due to the fixed nature of these costs.
The higher margin resulting from lower product costs was offset in part by
higher royalties.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $27.1 million, or 112.7%, to $51.1 million, or
27.8% of net sales, in 1999 from $24.0 million, or 28.2% of net sales, in 1998.
Selling, general and administrative expenses decreased nominally as a percentage
of net sales due in part to increases in advertising expenses and product
development costs of our various products in 1999, which were offset in part by
a decrease as a percentage of net sales due to the fixed nature of certain of
these expenses in conjunction with the significant increase in net sales. The
overall dollar increase of $27.1 million was due to the significant increase in
net sales with their proportionate impact on variable selling

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costs, such as freight and shipping related expenses, sales commissions,
cooperative advertising and travel expenses in addition to the costs added in
connection with our acquisitions of Flying Colors and Berk in 1999. We produced
television commercials in support of several of our products, including World
Wrestling Federation action figures, in 1998 and 1999. We may increase our
advertising efforts, including the use of more expensive advertising media, such
as television, if we deem it appropriate for particular products.

Income from Joint Venture. In 1999, we began to earn our preferred return
on the sale of World Wrestling Federation video games by our joint venture with
THQ.

Interest, Net. We had significantly lower interest-bearing obligations in
1999 than in 1998 with the conversion of our convertible debentures in 1999. In
addition, we had significantly higher average cash balances during 1999 than in
1998 due to the net proceeds from the sale of our common stock in May 1999 and
in December 1999.

Other (Income) Expense. In 1999, we recorded a nominal amount of Other
Income, while in 1998, Other Expense resulted from the loss on the disposition
of certain assets.

Provision for Income Taxes. Provision for income taxes included federal,
state and foreign income taxes at effective tax rates of 27.3% and 22.6% in 1999
and 1998, respectively, benefiting from a flat 16.5% Hong Kong Corporation Tax
on our income arising in, or derived from, Hong Kong. As of December 31, 1999,
we had deferred tax assets of approximately $1,460,000 for which no allowance
has been provided since, in the opinion of management, realization of the future
benefit is probable. In making this determination, management considered all
available evidence, both positive and negative, as well as the weight and
importance given to such evidence.

YEARS ENDED DECEMBER 31, 1998 AND 1997

Net Sales. Net sales increased $43.4 million, or 103.2%, to $85.3 million
in 1998 from $41.9 million in 1997. The significant growth in net sales was due
primarily to the continuing growth of the World Wrestling Federation action
figure product line with its expanded product offerings and frequent character
releases, as well as to the full year impact on sales of the Remco toy vehicles
and Child Guidance pre-school toys which contributed only nominally in 1997 from
their acquisition date in late October 1997. Contributions made by sales of Road
Champs die-cast collectible and toy vehicles and our holiday doll line were
comparable with the prior year, while our line of radio-controlled vehicles made
only nominal contributions to net sales in 1998.

Gross Profit. Gross profit increased $17.2 million, or 106.9%, to $33.3
million in 1998, or 39.0% of net sales, from $16.1 million, or 38.3% of net
sales, in 1997. The overall increase in gross profit was attributable to the
significant increase in net sales. The increase in the gross profit margin of
0.7% of net sales was due in part to the changing product mix, which included
products, such as World Wrestling Federation action figures, with higher margins
than some of our other products. The higher margin resulting from lower product
costs was offset in part by higher royalties, and the amortization expense of
molds and tools used in the manufacture of our products was comparable on a
percentage basis.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $12.1 million, or 101.8%, to $24.0 million, or
28.2% of net sales, in 1998, from $11.9 million, or 28.4% of net sales, in 1997.
The overall significant increase of $12.1 million in these costs was due in
large part to the full year impact of costs associated with our addition of
infrastructure in the United States and Hong Kong in connection with the Road
Champs

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acquisition, as well as to development and marketing costs of products under our
recently-acquired Child Guidance and Remco trademarks and under existing
products lines, such as the World Wrestling Federation action figures. Selling,
general and administrative expenses decreased modestly as a percentage of net
sales due in part to the fixed nature of certain of these expenses, which were
offset in part by increases in advertising expenses and product development
costs in 1998. The overall dollar increase was also due to the significant
increase in net sales with their proportionate impact on variable selling costs,
such as freight and shipping related expenses, sales commissions, cooperative
advertising and travel expenses. We produced television commercials in support
of several of our products, including World Wrestling Federation action figures
in 1998 and 1997, as well as radio-controlled vehicles in 1997. From time to
time, we may increase our advertising efforts, including the use of more
expensive advertising media, such as television, if we deem it appropriate for
particular products.

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

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

QUARTERLY FLUCTUATIONS AND SEASONALITY

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

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22

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

1997 1998 1999
------------------------------------- ------------------------------------- ---------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net sales............ $5,235 $8,059 $15,919 $12,732 $11,030 $16,131 $34,218 $23,873 $24,960 $35,981 $60,236
As a % of full
year.............. 12.5% 19.2% 38.0% 30.4% 12.9% 18.9% 40.1% 28.0% 13.6% 19.6% 32.8%
Gross profit......... $1,911 $3,203 $ 6,620 $ 4,336 $ 4,350 $ 6,118 $13,242 $ 9,542 $10,764 $14,649 $24,759
As a % of full
year.............. 11.9% 19.9% 41.2% 27.0% 13.1% 18.4% 39.8% 28.7% 14.2% 19.3% 32.5%
As a % of net
sales............. 36.5% 39.7% 41.6% 34.1% 39.4% 37.9% 38.7% 40.0% 43.1% 40.7% 41.1%
Income from
operations.......... $ 173 $ 721 $ 2,021 $ 1,260 $ 768 $ 1,427 $ 5,069 $ 1,983 $ 2,743 $ 4,225 $ 9,893
As a % of full
year.............. 4.1% 17.3% 48.4% 30.2% 8.3% 15.4% 54.8% 21.4% 11.0% 17.0% 40.0%
As a % of net
sales............. 3.3% 8.9% 12.7% 9.9% 7.0% 8.8% 14.8% 8.3% 11.0% 11.7% 16.4%
Income before income
taxes............... $ 124 $ 604 $ 1,908 $ 793 $ 610 $ 1,316 $ 4,648 $ 1,658 $ 2,743 $ 4,587 $10,426
As a % of net
sales............. 2.4% 7.5% 12.0% 6.2% 5.5% 8.2% 13.6% 6.9% 11.0% 12.7% 17.3%
Net income........... $ 203 $ 457 $ 1,455 $ 671 $ 462 $ 958 $ 3,434 $ 1,521 $ 2,005 $ 3,355 $ 7,642
As a % of net
sales............. 3.9% 5.7% 9.1% 5.3% 4.2% 5.9% 10.0% 6.4% 8.0% 9.3% 12.7%
Diluted earnings per
share............... $ 0.03 $ 0.07 $ 0.19 $ 0.07 $ 0.05 $ 0.09 $ 0.30 $ 0.14 $ 0.17 $ 0.21 $ 0.44
Weighted average
shares and
equivalents
outstanding......... 6,498 7,128 7,638 10,430 10,740 11,679 11,808 11,756 12,624 15,732 17,541

1999
-------
FOURTH
QUARTER

Net sales............ $62,508
As a % of full
year.............. 34.0%
Gross profit......... $25,912
As a % of full
year.............. 34.0%
As a % of net
sales............. 41.5%
Income from
operations.......... $ 8,068
As a % of full
year.............. 32.0%
As a % of net
sales............. 13.1%
Income before income
taxes............... $12,548
As a % of net
sales............. 19.9%
Net income........... $ 8,968
As a % of net
sales............. 14.4%
Diluted earnings per
share............... $ 0.49
Weighted average
shares and
equivalents
outstanding......... 18,378

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1999, we had working capital of $113.2 million, as
compared to $13.7 million as of December 31, 1998. This increase was primarily
attributable to operating activities and the public offerings of our common
stock in May 1999 and December 1999.

Operating activities used net cash of $30.4 million in the year ended
December 31, 1999 as compared to having provided $12.0 million in 1998. Net cash
was provided primarily by net income and non-cash charges, such as depreciation,
amortization and recognition of compensation expense for options, as well as an
increase in accounts payable and accrued liabilities, which were offset in part
by increases in accounts receivable and inventory and the purchase of marketable
securities. As of December 31, 1999, we had cash and cash equivalents of $57.5
million and marketable securities of $39.3 million.

Operating activities provided net cash of $12.0 million in 1998 as compared
to $3.2 million in 1997. Net cash was used primarily for the purchase of
marketable securities and increases in accounts receivable and inventory, offset
in part by net income, non-cash charges, such as depreciation, amortization and
recognition of compensation expense for options, and increases in operating
liabilities.

Our investing activities used net cash of $46.6 million in the year ended
December 31, 1999, as compared to $5.1 million in 1998, consisting primarily of
the purchase of molds and tooling used in the manufacture of our products in
1999 and 1998 and goodwill acquired in the acquisitions of Flying Colors and
Berk in 1999. As part of our strategy to develop and market new products, we
have entered into various character and product licenses with royalties ranging
from 1% to 10% payable on net sales of such products. As of December 31, 1999,
these agreements required future aggregate minimum guarantees of $13.8 million,
exclusive of $1.1 million in advances already paid.

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23

Our investing activities used net cash of $5.1 million in 1998, as compared
to $24.4 million in 1997, consisting primarily of the purchase of molds and
tooling used in the manufacture of our products, the initial funding of the
World Wrestling Federation joint venture in 1998, trademarks purchased in
connection with the acquisitions of Road Champs and the Child Guidance and Remco
brands, and goodwill acquired in connection with the acquisition of Road Champs
in 1997.

Our financing activities provided net cash of $122.1 million in the year
ended December 31, 1999, consisting primarily of the issuance of our common
stock in our public offerings in May and December 1999 and the exercises of
options and warrants, partially offset by dividends paid to holders of our
Series A Cumulative Convertible Preferred Stock. In 1998, financing activities
provided net cash of $3.0 million, consisting primarily of the issuance of our
Series A Cumulative Convertible Preferred Stock partially offset by the
repayment of various notes and other debt issued in connection with our
acquisitions in 1997.

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

In January 1997, we received proceeds, net of issuance costs, of
approximately $5.5 million from the issuance of $6.0 million in convertible
debentures, which were converted in March and April 1999 into 1,565,218 shares
of our common stock at a conversion price of $3.83 per share. These debentures
bore interest at 9% per annum, payable monthly, and were due in December 2003.

In February 1997, we acquired Road Champs for approximately $12.5 million.
Consideration paid at closing was approximately $4.7 million in cash plus the
issuance of 297,030 shares of our common stock (valued at approximately $1.5
million) and the assumption of approximately $766,000 of liabilities. The
balance of the cash consideration ($5.5 million) was paid during the
twelve-month period ended in February 1998. Assets included in the purchase were
molds and tooling, office and warehouse equipment and other operating assets, as
well as license agreements, trade name and goodwill.

In October 1997, we acquired the Child Guidance and Remco trademarks for
approximately $13.4 million. Consideration paid at closing was $10.6 million in
cash plus the issuance of a 10% note payable in the amount of $1.2 million,
which was paid in five quarterly installments ended December 31, 1998. In
addition, we incurred legal and accounting fees of approximately $203,000 and
assumed liabilities of $1.4 million. The acquisition was funded in part by the
issuance of shares of our 4% Redeemable Convertible Preferred Stock, which were
converted into 939,998 shares of our common stock in March 1998. Also in
connection with this acquisition, we entered into a manufacturing and supply
agreement whereby the seller of the trademarks will provide the tools and other
manufacturing resources for the production of products under the trademarks.
That agreement provides for four quarterly payments of $110,000, followed by six
quarterly payments of $160,000, which payments commenced on December 31, 1997
and are to be completed on March 31, 2000.

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24

In October 1997, we entered into a credit facility agreement with Norwest
Bank Minnesota, N.A. which provides our Hong Kong subsidiaries with a working
capital line of credit and letters of credit for the purchase of products and
the operation of those subsidiaries. The facility expired on May 31, 1999.

In April 1998, we received $4.7 million in net proceeds from the sale of
shares of our Series A Cumulative Convertible Preferred Stock to two investors
in a private placement, which were converted into 837,987 shares of our common
stock at a conversion price of $5.97 per share. The use of proceeds was for
working capital and general corporate purposes.

In May 1999, we received $51.9 million in net proceeds from the sale of
3,999,844 shares of our common stock. We used substantially all of these
proceeds to fund our acquisition of Flying Colors Toys. In December 1999, we
received $65.9 million in net proceeds from the sale of 2,811,111 shares of our
Common Stock. These proceeds, which we invested temporarily in marketable
securities and cash equivalents, are expected to be applied to our product
acquisition, development, working capital and general corporate needs.

In June 1999, we purchased all the outstanding capital stock of Berk for
approximately $3.1 million. We also agreed to pay an earn-out of up to $500,000
if sales of Berk products achieve certain prescribed levels over the 12-month
period ending June 30, 2000. Berk is a leading producer of educational toy foam
puzzle mats and blocks featuring popular licensed characters, including Mickey
Mouse, Minnie Mouse, Winnie the Pooh, Blue's Clues, Barney, Teletubbies, Sesame
Street, Looney Tunes and Toy Story 2 characters, and non-licensed activity sets
and outdoor products.

On October 5, 1999, we completed the acquisition of the Flying Colors
product line through the purchase of all the outstanding capital stock of Flying
Colors Toys, a privately-held company based in Dexter, Michigan. At or shortly
after the closing we paid approximately $34.7 million for the stock and paid off
approximately $17.6 million of indebtedness. We also agreed to pay an earn-out
of up to $13.5 million over the 36-month period following the closing if net
sales of Flying Colors products achieve certain targeted levels during this
period. Two of Flying Colors Toys' senior executives and most of its creative
design and product development staff have remained with Flying Colors Toys.
Flying Colors Toys' principal products include molded plastic activity kits,
clay compound playsets and lunch boxes featuring licensed characters, including
Barbie, Rugrats, Blue's Clues and Looney Tunes characters. The kits cover a
broad range of products and activities, such as make and paint your own
characters, jewelry making, art studios, posters, puzzles and other projects.

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

EXCHANGE RATES

We sell all of our products in U.S. dollars and pay for all of our
manufacturing costs in either U.S. or Hong Kong dollars. Operating expenses of
the Hong Kong office are paid in Hong Kong dollars. The exchange rate of the
Hong Kong dollar to the U.S. dollar has been fixed by the Hong

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25

Kong government since 1983 at HK$7.80 to US$1.00 and, accordingly, has not
represented a currency exchange risk to the U.S. dollar. We cannot assure you
that the exchange rate between the United States and Hong Kong currencies will
continue to be fixed or that exchange rate fluctuations will not have a material
adverse effect on our business, financial condition or results of operations.

IMPACT OF THE YEAR 2000

ASSESSMENT OF INTERNAL INFRASTRUCTURE. We believe that we have identified
most of the major computers, software applications and related equipment used in
connection with our internal operations that need to be evaluated to determine
if they must be modified, upgraded or replaced to minimize the possibility of a
material disruption to our business. Based on a review of these computer
systems, we have determined that our computer systems and applications are
compliant with the year 2000 format. Since January 1, 2000, we have not
experienced any problems with our computer systems or applications related to
the year 2000 problem.

SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems and other common devices, may
be affected by the year 2000 problem. We have assessed the potential effect of
the year 2000 problem on our office and facilities equipment and have determined
that no problems exist that cannot be remediated by the replacement of
relatively inexpensive equipment. Since January 1, 2000, we have not experienced
any problems with our office and facilities equipment related to the year 2000
problem.

COSTS OF REMEDIATION. Our total cost of completing required modifications,
upgrades or replacements of our internal systems was approximately $120,000.
Based on the activities described above, we do not believe that the year 2000
problem will have a material adverse effect on our business or operating
results.

SUPPLIERS. As part of our review of the year 2000 problem, we contacted
third-party suppliers of components and key contractors used in the production
of our products to identify and, to the extent possible, resolve issues
involving the year 2000 problem. However, we have limited or no control over the
actions of these third-party suppliers and subcontractors. Thus, while we
believe that we have resolved any significant year 2000 problems with these
third parties, there can be no assurance that these suppliers have resolved any
or all year 2000 problems before the occurrence of a material disruption to the
operation of our business. Any failure on the part of these third parties to
timely resolve year 2000 problems with their systems could have a material
adverse effect on our business. Since January 1, 2000, we have not experienced
any disruption in our business or operations resulting from any year 2000
problems of any of our third-party suppliers or contractors.

MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. We believe that we have
identified and resolved all year 2000 problems that could materially adversely
affect our business operations. Since January 1, 2000, we have not experienced
any year 2000 problems that have affected our business and operations. However,
we believe that it is not possible to determine with complete certainty that all
year 2000 problems affecting us have been identified or corrected. The number of
devices and systems that could be affected and the interactions among these
devices and systems are too numerous to address. In addition, we cannot
accurately predict whether failures will occur

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26

as a result of the year 2000 problem or the severity, timing, duration or
financial consequences of these potential failures. As a result, we believe it
is possible that:

- a significant number of operational inconveniences and inefficiencies for
us, our contract manufacturers and our customers that will divert
management's time and attention and financial and human resources from
ordinary business activities.

CONTINGENCY PLANS. We have developed contingency plans to be implemented if
our efforts to identify and correct year 2000 problems affecting our internal
systems are not effective. Depending on the systems affected, these plans
include:

- accelerated replacement of affected equipment or software;

- short- to medium-term use of backup equipment or software or other
redundant systems;

- increased work hours for our personnel or the hiring of additional
information technology staff; and

- the use of contract personnel to correct, on an accelerated basis, any
year 2000 problems that arise or to provide interim alternative solutions
for information system deficiencies.

Our implementation of any of these strategies could have a material adverse
effect on our business.

OTHER FACTORS. The discussion of our efforts and expectations relating to
year 2000 compliance are forward-looking statements. Our ability to achieve year
2000 compliance, and the level of incremental costs associated therewith, could
be adversely affected by, among other things, the availability and cost of
contract personnel and external resources, third-party suppliers' ability to
modify proprietary software and unanticipated problems not identified in the
ongoing compliance review.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our financial
position, results of operations or cash flows due to adverse changes in
financial and commodity market prices and rates. We are exposed to market risk
in the areas of changes in United States and international borrowing rates and
changes in foreign currency exchange rates. In addition, we are exposed to
market risk in certain geographic areas that have experienced or remain
vulnerable to an economic downturn, such as China. We purchase substantially all
of our inventory from companies in China, and, therefore, we are subject to the
risk that such suppliers will be unable to provide inventory at competitive
prices. While we believe that, if such an event were to occur we would be able
to find alternative sources of inventory at competitive prices, we cannot assure
you that we would be able to do so. These exposures are directly related to our
normal operating and funding activities. Historically and as of December 31,
1999, we have not used derivative instruments or engaged in hedging activities
to minimize our market risk.

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27

INTEREST RATE RISK

As of December 31, 1999, we do not have any bank loan or other credit
facility, nor do we have any outstanding debt securities, and, accordingly, we
are not generally subject to any direct risk of loss arising from changes in
interest rates.

FOREIGN CURRENCY RISK

We have wholly-owned subsidiaries in Hong Kong. Sales from these operations
are denominated in U.S. dollars. However, purchases of inventory and operating
expenses are typically denominated in Hong Kong dollars, thereby creating
exposure to changes in exchange rates. Changes in the Hong Kong dollar/U.S.
dollar exchange rate may positively or negatively affect our gross margins,
operating income and retained earnings. The exchange rate of the Hong Kong
dollar to the U.S. dollar has been fixed by the Hong Kong government since 1983
at HK$7.80 to US$1.00 and, accordingly, has not represented a currency exchange
risk to the U.S. dollar. We do not believe that near-term changes in exchange
rates, if any, will result in a material effect on our future earnings, fair
values or cash flows, and therefore, we have chosen not to enter into foreign
currency hedging transactions. We cannot assure you that this approach will be
successful, especially in the event of a significant and sudden change in the
value of the Hong Kong dollar.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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28

INDEPENDENT AUDITORS' REPORT

The Stockholders
JAKKS Pacific, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of JAKKS
Pacific, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows and
the financial statement schedule for each of the three years in the period ended
December 31, 1999. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.

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

In our opinion, the consolidated financial statements and schedule referred
to above present fairly, in all material respects, the financial position of
JAKKS Pacific, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.

/s/ PANNELL KERR FORSTER
--------------------------------------
PANNELL KERR FORSTER
Certified Public Accountants
A Professional Corporation
February 23, 2000

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29

JAKKS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
---------------------------
1998 1999
----------- ------------

ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $12,452,201 $ 57,546,406
Marketable securities..................................... -- 39,333,944
Accounts receivable, net of allowance for uncollectible
accounts of $133,986 and $1,887,374 for 1998 and 1999,
respectively........................................... 11,926,725 38,024,903
Inventory, net of reserves of $464,133 and $2,942,606 for
1998 and 1999, respectively............................ 2,918,941 19,863,508
Deferred product development costs........................ 237,914 --
Prepaid expenses and other................................ 789,691 1,617,692
Advanced royalty payments................................. 307,542 1,137,238
----------- ------------
Total current assets.............................. 28,633,014 157,523,691
PROPERTY AND EQUIPMENT
Office furniture and equipment............................ 440,162 1,233,068
Molds and tooling......................................... 5,826,643 15,283,211
Leasehold improvements.................................... 195,909 344,263
----------- ------------
Total............................................. 6,462,714 16,860,542
Less accumulated depreciation and amortization............ 2,173,708 5,320,103
----------- ------------
Property and equipment, net....................... 4,289,006 11,540,439
Deferred financing costs.................................... 408,151 --
Intangibles and deposits, net............................... 872,186 1,502,147
Investment in joint venture................................. 1,044,708 3,658,339
Goodwill, net............................................... 10,322,896 46,020,232
Trademarks, net............................................. 13,165,804 12,633,248
----------- ------------
Total assets...................................... $58,735,765 $232,878,096
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 3,705,116 $ 9,962,655
Accrued expenses.......................................... 4,371,711 15,856,505
Reserve for sales returns and allowances.................. 5,341,517 15,318,001
Current portion of long-term debt......................... 60,000 4,967
Income taxes payable...................................... 1,418,763 3,211,926
----------- ------------
Total current liabilities......................... 14,897,107 44,354,054
Long-term debt, net of current portion...................... 5,940,000 8,713
Deferred income taxes....................................... 144,705 1,013,834
----------- ------------
Total liabilities................................. 20,981,812 45,376,601
----------- ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.001 par value; 25,000,000 shares
authorized; issued and outstanding 9,039,063 and
19,272,692 shares, respectively........................ 9,039 19,273
Convertible preferred stock, $.001 par value; 5,000 shares
authorized; issued and outstanding 1,000 and no shares,
respectively........................................... 1 --
Additional paid-in capital................................ 27,041,523 155,172,781
Retained earnings......................................... 10,777,662 32,309,441
----------- ------------
37,828,225 187,501,495
Unearned compensation from grant of options............... 74,272 --
----------- ------------
Total stockholders' equity........................ 37,753,953 187,501,495
----------- ------------
Total liabilities and stockholders' equity........ $58,735,765 $232,878,096
=========== ============

See notes to consolidated financial statements.

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30

JAKKS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999

Net sales................................. $41,944,921 $85,252,563 $183,685,124
Cost of sales............................. 25,874,784 52,000,135 107,601,639
----------- ----------- ------------
Gross profit.............................. 16,070,137 33,252,428 76,083,485
Selling, general and administrative
expenses................................ 11,895,260 24,006,497 51,154,627
----------- ----------- ------------
Income from operations.................... 4,174,877 9,245,931 24,928,858
Income from Joint Venture................. -- -- (3,604,487)
Interest, net............................. 417,293 422,553 (1,588,043)
Other (income) expense.................... 328,139 590,948 (182,305)
----------- ----------- ------------
Income before provision for income
taxes................................... 3,429,445 8,232,430 30,303,693
Provision for income taxes................ 642,949 1,857,404 8,333,844
----------- ----------- ------------
Net income................................ $ 2,786,496 $ 6,375,026 21,969,849
=========== =========== ============
Basic earnings per share.................. $ 0.40 $ 0.75 $ 1.55
=========== =========== ============
Diluted earnings per share................ $ 0.35 $ 0.59 $ 1.39
=========== =========== ============

See notes to consolidated financial statements.

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31

JAKKS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1997, 1998 AND 1999

CONVERTIBLE PAR UNEARNED
COMMON PREFERRED VALUE ADDITIONAL COMPENSATION
SHARES SHARES PER STOCK PAID-IN RETAINED FROM GRANT
OUTSTANDING OUTSTANDING SHARE AMOUNT CAPITAL EARNINGS OF OPTIONS

Balance, December 31,
1996...................... 5,977,423 -- $0.001 $ 5,977 $ 10,319,303 $ 1,616,140 $(195,163)
Issuance of common stock for
cash...................... 1,035,000 -- 0.001 1,035 2,920,718 -- --
Exercise of options......... 103,688 -- 0.001 104 132,520 -- --
Issuance of common stock in
partial consideration for
purchase of toy
business.................. 297,030 -- 0.001 297 1,499,703 -- --
Issuance of convertible
preferred stock for
cash...................... -- 3,525 0.001 4 6,818,346 -- --
Earned compensation from
grant of options.......... -- -- -- -- -- -- 53,226
Net income.................. -- -- -- -- -- 2,786,496 --
---------- ------ ------ ------- ------------ ----------- ---------
Balance, December 31,
1997...................... 7,413,141 3,525 0.001 7,417 21,690,590 4,402,636 (141,937)
Conversion of preferred
stock..................... -- (3,525) 0.001 (4) 4 -- --
Issuance of common stock
from conversion of
preferred stock........... 1,409,997 -- 0.001 1,410 (1,410) -- --
Issuance of 7% convertible
preferred stock for
cash...................... -- 1,000 0.001 1 4,731,151 -- --
Exercise of options......... 215,925 -- 0.001 216 647,176 -- --
Earned compensation from
grant of options.......... -- -- -- -- -- -- 41,677
Cancellation of options,
unearned compensation..... -- -- -- -- (25,988) -- 25,988
Net income.................. -- -- -- -- -- 6,375,026 --
---------- ------ ------ ------- ------------ ----------- ---------
Balance, December 31,
1998...................... 9,039,063 1,000 0.001 9,040 27,041,523 10,777,662 (74,272)
Conversion of preferred
stock..................... -- (1,000) 0.001 (1) 1 -- --
Issuance of common stock
from conversion of
preferred stock........... 837,987 -- 0.001 838 (838) -- --
Issuance of common stock for
cash...................... 6,810,955 -- 0.001 6,811 117,785,304 -- --
Issuance of common stock
from conversion of
convertible debentures.... 1,565,218 -- 0.001 1,565 5,598,685 -- --
Dividends paid.............. -- -- -- -- -- (438,070) --
Exercise of options and
warrants.................. 1,019,469 -- 0.001 1,020 4,748,106 -- --
Earned compensation from
grant of options.......... -- -- -- -- -- -- 74,272
Net income.................. -- -- -- -- -- 21,969,849 --
---------- ------ ------ ------- ------------ ----------- ---------
Balance, December 31,
1999...................... 19,272,692 -- $0.001 $19,273 $155,172,781 $32,309,441 $ --
========== ====== ====== ======= ============ =========== =========

TOTAL
STOCKHOLDERS'
EQUITY

Balance, December 31,
1996...................... $ 11,746,257
Issuance of common stock for
cash...................... 2,921,753
Exercise of options......... 132,624
Issuance of common stock in
partial consideration for
purchase of toy
business.................. 1,500,000
Issuance of convertible
preferred stock for
cash...................... 6,818,350
Earned compensation from
grant of options.......... 53,226
Net income.................. 2,786,496
------------
Balance, December 31,
1997...................... 25,958,706
Conversion of preferred
stock..................... --
Issuance of common stock
from conversion of
preferred stock........... --
Issuance of 7% convertible
preferred stock for
cash...................... 4,731,152
Exercise of options......... 647,392
Earned compensation from
grant of options.......... 41,677
Cancellation of options,
unearned compensation..... --
Net income.................. 6,375,026
------------
Balance, December 31,
1998...................... 37,753,953
Conversion of preferred
stock..................... --
Issuance of common stock
from conversion of
preferred stock........... --
Issuance of common stock for
cash...................... 117,792,115
Issuance of common stock
from conversion of
convertible debentures.... 5,600,250
Dividends paid.............. (438,070)
Exercise of options and
warrants.................. 4,749,126
Earned compensation from
grant of options.......... 74,272
Net income.................. 21,969,849
------------
Balance, December 31,
1999...................... $187,501,495
============

See notes to consolidated financial statements.

30
32

JAKKS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999

CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 2,786,496 $ 6,375,026 $ 21,969,849
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization............... 1,605,226 2,986,137 4,571,374
Earned compensation from stock option
grants.................................... 53,226 41,677 74,272
Equity in earnings of joint venture......... -- -- (3,604,487)
Loss on disposal of property and
equipment................................. 328,139 719,331 12,081
Purchase of marketable securities........... -- -- (39,333,944)
Changes in operating assets and liabilities
Accounts receivable....................... (6,315,058) (3,191,197) (26,098,178)
Inventory................................. (1,808,145) (970,691) (16,944,567)
Prepaid expenses and other................ (450,545) 357,374 (1,416,033)
Accounts payable.......................... 2,655,469 (561,340) 6,257,539
Accrued expenses.......................... 2,262,159 1,904,465 11,484,794
Income taxes payable...................... 331,009 815,149 1,793,163
Reserve for sales returns and
allowances............................. 1,685,621 3,480,696 9,976,484
Deferred income taxes..................... 94,427 57,809 869,129
------------ ------------ ------------
Total adjustments...................... 441,528 5,639,410 (52,358,373)
------------ ------------ ------------
Net cash provided (used) by operating
activities........................... 3,228,024 12,014,436 (30,388,524)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment......................... (2,934,935) (3,875,852) (10,397,828)
Due from officers.............................. 104,918 15,112 --
Other assets................................... (241,572) (197,928) (763,249)
Trademarks..................................... (14,352,556) (12,252) --
Investment in joint venture.................... -- (1,044,708) 990,856
Cash paid in excess of cost over toy business
assets acquired (goodwill).................. (7,006,753) -- (36,446,401)
------------ ------------ ------------
Net cash used by investing
activities........................... (24,430,898) (5,115,628) (46,616,622)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock............. 2,946,603 -- 117,792,115
Proceeds from convertible preferred stock...... 6,818,350 4,731,152 --
Conversion of convertible debentures........... -- -- (17,500)
Proceeds from debt............................. 13,413,659 -- 13,680
Proceeds from stock options and warrants
exercised................................... 132,624 647,392 4,749,126
Dividends paid................................. -- -- (438,070)
Repayments of debt............................. (5,245,665) (2,361,076) --
Deferred financing costs....................... (682,032) -- --
------------ ------------ ------------
Net cash provided by financing
activities........................... 17,383,539 3,017,468 122,099,351
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................... (3,819,335) 9,916,276 45,094,205
Cash and cash equivalents, beginning of year..... 6,355,260 2,535,925 12,452,201
------------ ------------ ------------
Cash and cash equivalents, end of year........... $ 2,535,925 $ 12,452,201 $ 57,546,406
============ ============ ============
Cash paid during the period for:
Interest....................................... $ 648,187 $ 647,404 $ 176,688
============ ============ ============
Income taxes................................... $ 217,213 $ 1,042,255 $ 4,742,351
============ ============ ============

See note 15 for additional supplemental information to consolidated
statements of cash flows.

See notes to consolidated financial statements.

31
33

JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999

NOTE 1--PRINCIPAL INDUSTRY

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

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

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

CASH AND CASH EQUIVALENTS

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

USE OF ESTIMATES

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

REVENUE RECOGNITION

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

COMPREHENSIVE INCOME

In March 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. This standard requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balances of other comprehensive
income separately from retained earnings and additional paid-in

32
34
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

capital in the equity section of a statement of financial position. The adoption
of this statement did not have any impact on the Company's results of
operations, financial position, or cash flows.

DEFERRED FINANCING COSTS

Costs incurred for financings are deferred when incurred. The deferred
offering costs related to the debentures are amortized over the term of the
debentures, or are written-off upon conversion.

INVENTORY

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

MARKETABLE SECURITIES

In 1999 the Company adopted SFAS No. 115 (Accounting for Certain
Investments in Debt Securities). The marketable securities have been categorized
as trading and as a result are stated at fair value, with unrealized holding
gains and losses included in earnings which were not material at December 31,
1999.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

PROPERTY AND EQUIPMENT

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

Personal computers................ 5 years
Office equipment.................. 5 years
Furniture and fixtures............ 5 - 7 years
Molds and tooling................. 2 - 4 years
Leasehold improvements............ Shorter of length of lease or 10 years

ADVERTISING

Production costs of commercials and programming are charged to operations
in the year during which the production is first aired. The costs of other
advertising, promotion and marketing programs are charged to operations in the
year incurred. Advertising expense for the years ended December 31, 1997, 1998
and 1999 was approximately $1,304,000, $3,903,000, and $7,038,000, respectively.

INCOME TAXES

The Company does not file a consolidated return with its foreign
subsidiaries. The Company files Federal and state returns and its foreign
subsidiaries file Hong Kong returns. Deferred taxes
33
35
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

are provided on a liability method whereby deferred tax assets are recognized as
deductible temporary differences and operating loss and tax credit
carry-forwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.

TRANSLATION OF FOREIGN CURRENCIES

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

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

BUSINESS SEGMENTS

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

RECLASSIFICATIONS

Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to the current year presentation.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess purchase price paid over the fair market
value of the assets of acquired toy companies. Goodwill is being amortized over
30 years on a straight-line basis. Accumulated amortization at December 31, 1998
and 1999 totaled $632,519 and $1,381,585, respectively.

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

Intangible assets other than goodwill consist of product technology rights
and trademarks. Intangible assets are amortized on a straight-line basis, over
five to thirty years, the estimated economic lives of the related assets.
Accumulated amortization as of December 31, 1998 and 1999 was $1,177,306 and
$1,528,893, respectively.

34
36
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

STOCK SPLIT

The Board of Directors approved a common stock dividend of 1/2 share for
each share of common stock outstanding to effect a three-for-two stock split of
the Company's common stock, which was paid on November 4, 1999. All common stock
and common stock equivalent shares and per share amounts have been adjusted
retroactively to give effect to the split.

EARNINGS PER SHARE (EPS)

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." This statement establishes simplified standards for
computing and presenting earnings per share (EPS). It requires dual presentation
of basic and diluted EPS on the face of the income statement for entities with
complex capital structures and disclosures of the calculation of each EPS
amount.

1997
--------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE

Basic EPS
Income available to common stockholders........ $ 2,786,496 6,932,053 $0.40
=====
Effect of dilutive securities
Options and warrants........................... -- 281,641
9% convertible debentures...................... 363,286 1,535,117
4% convertible preferred stock................. -- 263,856
----------- ----------
Diluted EPS
Income available to common stockholders plus
assumed exercises and conversions............ $ 3,149,782 9,012,667 $0.35
=========== ========== =====

1998
--------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE

Basic EPS
Income available to common stockholders........ $ 6,375,026 8,538,901 $0.75
=====
Effect of dilutive securities
Options and warrants........................... -- 326,847
9% convertible debentures...................... 372,732 1,565,219
4% convertible preferred stock................. -- 340,878
7% convertible preferred stock................. -- 630,792
----------- ----------
Diluted EPS
Income available to common stockholders plus
assumed exercises and conversions............ $ 6,747,758 11,402,637 $0.59
=========== ========== =====

35
37
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

1999
--------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE

Basic EPS
Net income..................................... $21,969,849
Preferred dividends declared/paid.............. (438,070)
-----------
Income available to common stockholders........ $21,531,779 13,879,304 $1.55
=====
Effect of dilutive securities
Options and warrants........................... -- 1,088,179
9% convertible debentures...................... 116,867 466,556
7% convertible preferred stock................. 437,500 405,640
----------- ----------
Diluted EPS
Income available to common stockholders plus
assumed exercises and conversions............ $22,086,146 15,839,679 $1.39
=========== ========== =====

NOTE 3--ACQUISITIONS AND JOINT VENTURE

In June 1998, the Company formed a joint venture with a company that
develops, publishes and distributes interactive entertainment software for the
leading hardware game platforms in the home video game market. The joint venture
has entered into a license agreement under which it acquired the exclusive
worldwide right to publish video games on all hardware platforms. The Company
has made initial contributions to the joint venture of $1,044,708 in 1998.
During 1999 the joint venture agreement was revised. Key changes included a
$1,000,000 reimbursement to the Company for its initial capital contribution to
the joint venture. In addition, it defines the Company's preferred returns based
on the joint venture's sales. The joint venture's profit and loss will be
allocated at 100% to the Company to the extent any preferred return is
distributed, accrued or distributable for such fiscal year. Losses shall be
allocated in accordance with membership interests for so long as the Company has
a positive capital account and thereafter shall be allocated solely to the other
partner. During 1999 the Company earned $3,604,487 in joint venture income.

In October 1999, the Company acquired all of the stock of Flying Colors
Toys, Inc. and all of the operating assets of an affiliated company for
$52,879,182. Consideration paid at closing was in cash. Professional fees
totaling $310,667 were incurred as part of the acquisition costs. Contingent
consideration includes an earn-out in an amount of up to $4,500,000 in each of
the three 12-month periods following the closing, if gross profits of Flying
Colors Toys branded products achieve certain prescribed levels in each of such
periods.

36
38
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

The assets acquired and liabilities assumed from Flying Colors Toys, Inc.
were as follows:

Cash................................................... $ 23,534
Accounts receivable, net of reserve of $686,222........ 12,816,573
Inventory, net of reserve of $2,774,017................ 11,052,983
Prepaid expenses....................................... 194,840
Property and equipment................................. 1,943,025
Deferred income taxes.................................. 1,460,000
Non-compete agreement.................................. 1,000,000
Goodwill............................................... 32,081,192
Liabilities assumed.................................... (7,692,965)
-----------
Net assets acquired.................................... $52,879,182
===========

In June 1999, the Company purchased all of the outstanding shares of Berk
Corporation, for $3,269,450, consideration paid at closing was in cash.
Professional fees totaling $112,768 were incurred as part of the acquisition
costs. In addition, contingent consideration includes an earn-out of $500,000 or
$250,000 if Berk Corporation branded products achieve prescribed sales amounts
during the 12-month earn-out period.

The assets acquired and liabilities assumed from Berk Corporation were as
follows:

Cash............................................ $ 478,972
Accounts receivable............................. 869,050
Inventory....................................... 549,720
Prepaids and deposits........................... 73,367
Property and equipment.......................... 31,186
Goodwill........................................ 4,365,208
Liabilities assumed............................. (3,098,053)
-----------
$ 3,269,450
===========

The following unaudited pro forma information represents the Company's
consolidated results of operations as if the acquisitions of Flying Colors Toys,
Inc. (FCT) and Berk Corporation (Berk) had occurred on January 1, 1998 and after
giving effect to certain adjustments including the elimination of other income
and expense items not attributable to on-going operations, interest and
depreciation expense, and related tax effects. Such pro forma information does
not purport to be

37
39
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

indicative of operating results that would have been reported had the
acquisitions of FCT and Berk occurred on January 1, 1998 or future operating
results.

YEARS ENDED DECEMBER 31,
---------------------------
1998 1999

Net sales....................... $135,430,728 $218,079,180
============ ============
Net income...................... $ 10,174,650 $ 22,769,655
============ ============
Basic earnings per share........ $ 1.19 $ 1.64
============ ============
Weighted average shares
outstanding................... 8,538,901 13,879,304
============ ============
Diluted earnings per share...... $ 0.89 $ 1.44
============ ============
Weighted average shares and
equivalent outstanding........ 11,402,637 15,839,679
============ ============

NOTE 4--CONCENTRATION OF CREDIT RISK

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

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

Included in the Company's consolidated balance sheets at December 31, 1998
and 1999 are its operating net assets, most of which are located in facilities
in Hong Kong and China and which totaled approximately $8,627,000 and
$14,510,000 for 1998 and 1999, respectively.

NOTE 5--ACCRUED EXPENSES

Accrued expenses consist of the following:

1998 1999

Bonuses................................... $ 841,000 $ 2,747,710
Trademarks acquisition reserve............ 177,245 177,245
Royalties and sales commissions........... 2,681,973 6,667,598
Hong Kong subsidiaries accruals........... 529,722 3,436,335
Other..................................... 141,771 2,827,617
---------- -----------
$4,371,711 $15,856,505
========== ===========

NOTE 6--RELATED PARTY TRANSACTIONS

A director of the Company is a partner in the law firm that acts as counsel
to the Company. The Company incurred legal fees and expenses to the law firm in
the amount of approximately $151,000 in 1997, $510,000 in 1998 and $1,037,000 in
1999.

38
40
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

NOTE 7--LONG-TERM DEBT

Long-term debt consists of the following:

1998 1999

Convertible debentures, bearing interest on the principal
amounts outstanding at 9% per annum were converted into
1,565,218 shares of the Company's common stock at $3.83
per share................................................. $6,000,000 $ --
Loan Payable, due in sixty monthly payments with the final
payment due December 29, 2002, with interest at 6.9% per
annum..................................................... -- 13,680
---------- ------
6,000,000 13,680
Less current portion of long-term debt...................... 60,000 4,967
---------- ------
Long-term debt, net of current portion...................... $5,940,000 $8,713
========== ======

NOTE 8--INCOME TAXES

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

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

1997 1998 1999

Federal................................ $ -- $ 715,000 $4,280,650
State and local........................ 26,000 210,000 1,350,000
Hong Kong.............................. 522,522 874,595 1,834,065
--------- ---------- ----------
548,522 1,799,595 7,464,715
Deferred............................... 94,427 57,809 869,129
--------- ---------- ----------
$ 642,949 $1,857,404 $8,333,844
========= ========== ==========

As of December 31, 1999, the Company has utilized all net operating loss
carry-forwards.

1998 1999

Deferred tax assets resulting from deductible
temporary differences from loss carry-forwards,
noncurrent.......................................... $ 493,134 $ 1,460,000
Deferred tax liabilities resulting from taxable
temporary differences, noncurrent................... (637,839) (2,473,834)
--------- -----------
$(144,705) $(1,013,834)
========= ===========

39
41
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

The Company's management concluded that a deferred tax asset valuation
allowance as of December 31, 1998 and 1999 was not necessary.

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

1997 1998 1999

Statutory income tax rate............................... 35% 35% 35%
State and local income taxes, net of Federal income tax
effect................................................ 1 1 4
Effect of temporary differences and Hong Kong's lower
tax rate.............................................. -- (22) (28)
Effect of net operating loss carry-forwards............. (35) (11) --
Income taxes on foreign earnings at rates other than the
United States Statutory rate not subject to United
States income taxes................................... 18 19 16
--- --- ---
19% 22% 27%
=== === ===

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

1997 1998 1999

Domestic............................. $ 16,216 $3,681,456 $13,105,423
Foreign.............................. 3,413,229 4,550,974 17,198,270
---------- ---------- -----------
$3,429,445 $8,232,430 $30,303,693
========== ========== ===========

NOTE 9--LEASES

The Company leases office and showroom facilities and certain equipment
under operating leases. The following is a schedule of minimum annual lease
payments. Rent expense for the years ended December 31, 1997, 1998 and 1999
totaled $582,766, $550,360, and $737,340, respectively.

2000............................ $ 965,472
2001............................ 1,212,444
2002............................ 1,149,888
2003............................ 1,008,057
2004............................ 1,015,791
Thereafter...................... 2,949,906
----------
$8,301,558
==========

NOTE 10--COMMON STOCK AND PREFERRED STOCK

The Company has 26,000,000 authorized shares of stock consisting of
25,000,000 shares of $.001 par value common stock and 1,000,000 shares of $.001
par value preferred stock.

During 1999, 6,810,955 shares of the Company's stock were issued in two
separate offerings for a total of $117,792,115. Additionally, the Company issued
1,019,469 shares of common stock on exercise of options and warrants for a total
of $4,749,126.

40
42
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

In 1999, the Company issued 1,565,218 shares of common stock upon
conversion of convertible debentures totaling $5,600,250.

On April 1, 1998, the Company sold 1,000 shares of its Series A 7%
cumulative convertible preferred stock to two investors for $4,731,152, net of
issuance costs. In 1999, the holders of these shares converted such shares into
837,987 shares of common stock. Preferred stockholders received cumulative cash
dividends of $438,070 in 1999.

During 1998, 215,925 shares of the Company's common stock were issued on
exercise of options and warrants for a total of $647,392.

During 1997, the Company issued 1,035,000 shares of its common stock in a
public offering and 237,030 shares as partial consideration for the RCI
acquisition.

During 1997, in a private placement, the Company issued 3,525 shares of its
4% redeemable convertible preferred stock at a purchase price of $2,000 per
share. In March 1998, all of the 3,525 shares of such issue were converted into
an aggregate of 1,409,997 shares of the Company's common stock based on a
conversion price of $5.00 per share.

NOTE 11--COMMITMENTS

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

Future annual minimum royalty guarantees as of December 31, 1999 are as
follows:

2000........................... $ 3,610,028
2001........................... 2,491,750
2002........................... 1,199,500
2003........................... 955,000
2004........................... 955,000
Thereafter..................... 4,625,000
-----------
$13,836,278
===========

The Company entered into a firm price commitment manufacturing and supply
agreement in connection with the acquisition of the R&CG trademarks purchased in
1997. The agreement was entered into with the seller of the trademarks to obtain
from the seller tools and other manufacturing resources of the seller for the
manufacture of products, upon request by the Company. The manufacturing and
supply agreement has created a firm commitment by the Company for a minimum of
$1,400,000. A minimum payment of $110,000 on the agreement was due on December
31, 1997, with three additional payments of $110,000 and six payments of
$160,000 to follow thereafter, through March 31, 2000, which is also the date on
which the agreement terminates.

41
43
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

NOTE 12--STOCK OPTION PLAN

Under its Third Amended and Restated 1995 Stock Option Plan (the Plan), the
Company has reserved 2,625,000 shares of its common stock for issuance upon
exercise of options granted under the Plan. In 1999, stockholders approved an
increase of 750,000 shares in the number of shares available for grant. Under
the Plan, employees (including officers), non-employee directors and independent
consultants may be granted options to purchase shares of common stock. Prior to
the adoption of the Plan in 1995, options for 414,750 shares were granted at an
exercise price of $1.33 per share. The Company recorded deferred compensation
costs and a related increase in paid-in capital of $212,905 for the difference
between the grant price and the deemed fair market value of the common stock of
$1.85 per share at the date of grant. Such compensation costs are recognized on
a straight-line basis over the vesting period of the options, which is 25% per
year commencing twelve months after the grant date of such options. In 1997,
1998 and 1999, the fair value of each employee option grant was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions used: risk-free rate of interest of 6%; dividend yield of 0%; and
expected lives of five years.

As of December 31, 1999, 64,374 shares were available for future grant.
Additional shares may become available to the extent that options presently
outstanding under the Plan terminate or expire unexercised.

Stock option activity pursuant to the Plan is summarized as follows:

WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE

Outstanding, December 31, 1996................. 188,212 $ 4.34
Granted...................................... 607,538 6.61
Exercised.................................... -- --
Canceled..................................... -- --
--------- ------
Outstanding, December 31, 1997................. 795,750 6.08
Granted...................................... 726,750 5.59
Exercised.................................... (47,700) 5.45
Canceled..................................... (109,500) 5.85
--------- ------
Outstanding, December 31, 1998................. 1,365,300 5.86
Granted...................................... 1,198,125 16.07
Exercised.................................... (374,608) 5.20
Canceled..................................... (50,499) 5.50
--------- ------
Outstanding, December 31, 1999................. 2,138,318 $11.70
========= ======

42
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JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

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

WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE

Outstanding, December 31, 1996.................. 527,250 $2.12
Granted....................................... 90,000 4.59
Exercised..................................... (103,688) 1.33
Canceled...................................... -- --
-------- -----
Outstanding, December 31, 1997.................. 513,562 2.71
Granted....................................... -- --
Exercised..................................... (151,350) 2.62
Canceled...................................... (50,625) 1.33
-------- -----
Outstanding, December 31, 1998.................. 311,587 $2.98
Granted....................................... -- --
Exercised..................................... (210,525) 2.64
Canceled...................................... -- --
-------- -----
Outstanding, December 31, 1999.................. 101,062 $3.69
======== =====

The weighted average fair value of options granted to employees in 1997,
1998 and 1999 was $3.34, $4.10 and $9.12 per share, respectively.

The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:

OUTSTANDING EXERCISABLE
-------------------------------- --------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
NUMBER AVERAGE EXERCISE NUMBER EXERCISE
OPTION PRICE RANGE OF SHARES LIFE PRICE OF SHARES PRICE

$1.33 - $26.00....................... 2,239,380 5.7 years $11.26 612,133 $6.76

In addition, as of December 31, 1999, 293,132 shares were reserved for
issuance upon exercise of outstanding warrants granted in connection with the
Company's initial public offering, follow-on public offering, private placement
of convertible debentures and certain license agreements, at exercise prices
ranging from $4.50 to $6.67 per share.

Had the compensation cost for the Company's Plan been determined on a basis
consistent with SFAS No. 123, the Company's net income and earnings per share
(EPS) for 1997, 1998 and 1999 would approximate the pro forma amounts below,
which are not indicative of future amounts:

YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1998 1999
----------------------- ----------------------- -------------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA

SFAS No. 123 charge, net of tax... -- $ 132,895 $ -- $ 551,541 $ -- $ 1,178,025
Net income........................ 2,786,496 2,653,601 6,375,026 5,823,485 21,969,849 20,791,824
Basic EPS......................... 0.40 0.38 0.75 0.68 1.55 1.47
Diluted EPS....................... $ 0.35 $ 0.33 $ 0.59 $ 0.55 $ 1.39 $ 1.32

43
45
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

NOTE 13 -- PROFIT SHARING PLAN

Effective January 1, 1997, the Company adopted a 401(k) profit sharing plan
and trust (Plan). The Plan is for the exclusive benefit of eligible employees
and beneficiaries. Under the Plan, employees may choose to reduce their
compensation and have those amounts contributed to the Plan on their behalf.
Contributions made to the Plan will be held and invested by the Plan's trustee.
The Company will act as the Plan's administrator. The Plan year begins on
January 1st and ends on December 31st. Employees may be eligible to participate
in the Plan after they have completed three months of service. The Company will
make matching contributions equal to 50% of the amount of salary reduction
deferred up to a maximum of 10% of compensation. The Company may also make
discretionary contributions to the Plan each year. Participants may elect to
defer up to 15% of their compensation each year. However, deferrals in any
taxable year may not exceed a dollar limit which is set by law. The limit for
1999 was $10,500. Participants are immediately 100% vested in their salary
reduction amounts contributed to the Plan. Vesting of the Company contributions
made to the Plan is based on years of service, as follows:

CUMULATIVE
YEARS OF SERVICE PERCENT VESTED

1.............................. 20%
2.............................. 40
3.............................. 60
4.............................. 80
5.............................. 100

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

As of December 31, 1999, the Plan has not been "qualified" under the
provisions of the Internal Revenue Code, and for the year then ended, the
Company contributed $63,344 in matching contributions to the Plan.

NOTE 14--MAJOR CUSTOMERS AND INTERNATIONAL SALES

Net sales to major customers were as follows:

1997 1998 1999
- ------------------------ ------------------------ -------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE

$14,689,000 35.0% $23,604,000 27.7% $ 45,270,000 24.6%
3,422,000 8.2 11,103,000 13.0 27,684,000 15.1%
3,199,000 7.6 10,944,000 12.8 22,739,000 12.4%
2,658,000 6.3 9,951,000 11.7 17,938,000 9.8%
1,925,000 4.6 3,717,000 4.4 15,229,000 8.3%
- ----------- ---- ----------- ---- ------------ ----
$25,893,000 61.7% $59,319,000 69.6% $128,860,000 70.2%
=========== ==== =========== ==== ============ ====

Net sales to international customers totaled approximately $3,733,000,
$6,309,000 and $13,056,000 in 1997, 1998 and 1999, respectively.

44
46
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

NOTE 15--SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS

In 1999, the holders of the Company's 9% convertible debentures converted
all $6,000,000 principal amount of the debentures into 1,565,218 shares of the
Company's common stock. Additionally, all 1,000 outstanding shares of 7%
cumulative convertible preferred stock with a total stockholders' equity value
of $4,731,152 were converted into an aggregate of 837,987 shares of the
Company's common stock.

In 1998, the 3,525 shares of 4% redeemable convertible preferred stock with
a total stockholders' equity value of $6,818,350 were converted into an
aggregate of 1,409,997 shares of the Company's common stock.

In 1997, 297,030 shares of common stock valued at $1,500,000 were issued in
connection with the acquisition of RCI.

NOTE 16--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected unaudited quarterly financial data for the years 1998 and 1999 are
summarized below:

1998 1999
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net sales........................................ $11,030 $16,131 $34,218 $23,873 $24,960 $35,981 $60,236 $62,508
Gross profit..................................... $ 4,350 $ 6,118 $13,242 $ 9,542 $10,764 $14,649 $24,759 $25,912
Income from operations........................... $ 768 $ 1,427 $ 5,069 $ 1,983 $ 2,743 $ 4,225 $ 9,893 $ 8,068
Income before income taxes....................... $ 610 $ 1,316 $ 4,648 $ 1,658 $ 2,743 $ 4,587 $10,426 $12,548
Net income....................................... $ 462 $ 958 $ 3,434 $ 1,521 $ 2,005 $ 3,355 $ 7,642 $ 8,968
Basic earnings per share......................... $ 0.06 $ 0.11 $ 0.39 $ 0.17 $ 0.18 $ 0.35 $ 0.48 $ 0.53
Weighted average shares outstanding.............. 7,429 8,824 8,899 8,971 9,171 13,243 16,037 16,952
Diluted earnings per share....................... $ 0.05 $ 0.09 $ 0.30 $ 0.14 $ 0.17 $ 0.21 $ 0.44 $ 0.49
Weighted average shares and equivalents
outstanding..................................... 10,740 11,679 11,808 11,756 12,624 15,732 17,541 18,378

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JAKKS PACIFIC, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

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

BALANCE AT
BEGINNING CHARGED TO CHARGED TO BALANCE
OF COSTS AND OTHER AT END
PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD

Year ended December 31,
1997:
Allowance for:
Uncollectible
accounts.......... $ -- $ -- $ 51,153 $ -- $ 51,153
Reserve for potential
product
obsolescence...... -- -- 200,000 70,305 129,695
Reserve for sales
returns and
allowances........ 175,000 3,660,775 1,050,000 3,024,954 1,860,821
---------- ----------- ----------- ----------- -----------
$ 175,000 $ 3,660,775 $ 1,301,153 $ 3,095,259 $ 2,041,669
========== =========== =========== =========== ===========
Year ended December 31,
1998:
Allowance for:
Uncollectible
accounts.......... $ 51,153 $ 82,833 $ -- $ -- $ 133,986
Reserve for potential
product
obsolescence...... 129,695 334,438 -- -- 464,133
Reserve for sales
returns and
allowances........ 1,860,821 6,525,867 -- 3,045,171 5,341,517
---------- ----------- ----------- ----------- -----------
$2,041,669 $ 6,943,138 $ -- $ 3,045,171 $ 5,939,636
========== =========== =========== =========== ===========
Year ended December 31,
1999:
Allowance for:
Uncollectible
accounts.......... $ 133,986 $ 1,287,208 $ 686,222 $ 220,042 $ 1,887,374
Reserve for potential
product
obsolescence...... 464,133 2,775,340 -- 296,867 2,942,606
Reserve for sales
returns and
allowances........ 5,341,517 17,036,875 334,464 $ 7,394,855 15,318,001
---------- ----------- ----------- ----------- -----------
$5,939,636 $21,099,423 $ 1,020,686 $ 7,911,764 $20,147,981
========== =========== =========== =========== ===========

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48

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

Our directors and executive officers are as follows:

NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------

Jack Friedman 60 Chairman and Chief Executive Officer
Stephen G. Berman 35 Chief Operating Officer, President, Secretary and Director
Joel M. Bennett 38 Chief Financial Officer
Robert E. Glick 54 Director
Michael G. Miller 52 Director
Murray L. Skala 54 Director

Jack Friedman has been our Chairman and Chief Executive Officer since
co-founding JAKKS with Mr. Berman in January 1995. Until December 31, 1998, he
was also our President. From January 1989 until January 1995, Mr. Friedman was
Chief Executive Officer, President and a director of THQ. From 1970 to 1989, Mr.
Friedman was President and Chief Operating Officer of LJN Toys, Ltd., a toy and
software company. After LJN was acquired by MCA/Universal, Inc. in 1986, Mr.
Friedman continued as President until his departure in late 1988.

Stephen G. Berman has been our Chief Operating Officer and Secretary and
one of our directors since co-founding JAKKS with Mr. Friedman in January 1995.
Since January 1, 1999, he has also served as our President. From our inception
until December 31, 1998, Mr. Berman was also our Executive Vice President. From
October 1991 to August 1995, Mr. Berman was a Vice President and Managing
Director of THQ International, Inc., a subsidiary of THQ. From 1988 to 1991, he
was President and an owner of Balanced Approach, Inc., a distributor of personal
fitness products and services.

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

Robert E. Glick has been one of our directors since October 1996. For more
than 20 years, Mr. Glick has been an officer, director and principal stockholder
in a number of privately-held companies which manufacture and market women's
apparel.

47
49

Michael G. Miller has been one of our directors since February 1996. From
1979 until May 1998, Mr. Miller was President and a director of several
privately-held affiliated companies, including a list brokerage and list
management consulting firm, a database management consulting firm, and a direct
mail graphic and creative design firm. Mr. Miller's interests in such companies
were sold in May 1998. Since 1991, he has been President of an advertising
company.

Murray L. Skala has been one of our directors since October 1995. Since
1976, Mr. Skala has been a partner of the law firm Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP, our general counsel. Mr. Skala is a director of Quintel
Entertainment, Inc., a publicly-held company in the business of
telecommunications services and entertainment.

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

COMMITTEES OF THE BOARD OF DIRECTORS

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

Audit Committee. The primary functions of the Audit Committee are to
recommend the appointment of our independent certified public accountants and to
review the scope and effect of audits. Messrs. Glick, Miller and Skala are the
current members of the Audit Committee.

Compensation Committee. The functions of the Compensation Committee are to
make recommendations to the Board regarding compensation of management employees
and to administer plans and programs relating to employee benefits, incentives
and compensation, other than our Third Amended and Restated 1995 Stock Option
Plan (the "Option Plan"). Messrs. Friedman, Miller and Skala are the current
members of the Compensation Committee.

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

To the best of our knowledge, all Forms 3, 4 or 5 required to be filed
pursuant to Section 16(a) of the Exchange Act during or with respect to the
fiscal year ended December 31, 1999 were filed on a timely basis, except that
each of Messrs. Friedman, Berman, Bennett, Glick, Miller and Skala did not file
a Form 4 until January 5, 2000 with respect to the shares of our common stock
distributed to him on November 4, 1999 in connection with the 3-for-2 split of
our common stock effected on that date.

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50

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation we paid for our fiscal
years ended December 31, 1997, 1998 and 1999 to our Chief Executive Officer and
to each of our other executive officers whose compensation exceeded $100,000 on
an annual basis (collectively, the "Named Officers").

SUMMARY COMPENSATION TABLE

LONG-TERM AWARDS
ANNUAL COMPENSATION --------------------
------------------------------------------ RESTRICTED
OTHER ANNUAL STOCK
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#)
------------------ ---- ------- --------- ------------- ---------- -------

Jack Friedman........................ 1999 521,000 1,750,000 -- -- 232,500
Chairman and Chief 1998 446,000 550,000 -- -- 187,500
Executive Officer 1997 296,000 130,224 -- -- 187,500
Stephen G. Berman.................... 1999 496,000 1,750,000 -- -- 394,500
Chief Operating Officer, 1998 421,000 550,000 -- -- 187,500
President and Secretary 1997 271,000 130,224 -- -- 187,500
Joel M. Bennett...................... 1999 155,000 130,000 -- -- 42,500
Chief Financial Officer 1998 135,000 45,000 -- -- --
1997 110,000 40,000 -- -- 45,000

- - Employment Agreements

On July 1, 1999, we entered into 10-year employment agreements with Jack
Friedman and Stephen G. Berman, respectively, pursuant to which Mr. Friedman
serves as our Chairman and Chief Executive Officer and Mr. Berman serves as our
President and Chief Operating Officer. Mr. Friedman's annual base salary in 2000
is $771,000 and Mr. Berman's is $746,000. Their annual base salaries are subject
to annual increases in an amount, not less than $25,000, determined by our Board
of Directors. Each of them is also entitled to receive an annual bonus equal to
4% of our pre-tax income, but not more than $1,000,000 for 1999 or $2,000,000
for subsequent years, if our pre-tax earnings are at least $2,000,000. If we
terminate Mr. Friedman's or Mr. Berman's employment other than "for cause" or if
he resigns because of our material breach of the employment agreement or because
we cause a material change in his employment, we are required to make a lump-sum
severance payment in an amount equal to his base salary and 4% bonus during the
balance of the term of the employment agreement, based on his then applicable
annual base salary and 4% bonus. In the event of the termination of his
employment under certain circumstances after a "Change of Control" (as defined
in the employment agreement), we are required to make to him a one-time payment
of an amount equal to 2.99 times his "base amount" determined in accordance with
the applicable provisions of the Internal Revenue Code.

- - Third Amended and Restated 1995 Stock Option Plan

Our Third Amended and Restated 1995 Stock Option Plan (the "Option Plan")
was originally adopted and approved by the stockholders and directors in July
1998 and amended in August 1999. Options to purchase, in the aggregate, up to
2,625,000 shares of our common stock may be granted under the Option Plan. The
Option Plan allows us to grant options that are intended to qualify as incentive
stock options ("Incentive Stock Options") within the meaning of Section 422 of
the Internal Revenue Code or as options that are not intended to meet the
requirements of such section

49
51

("Nonstatutory Stock Options"). Under the Option Plan, Incentive Stock Options
may only be granted to our employees (including officers), while Nonstatutory
Stock Options may be granted to employees (including officers), non-employee
directors, consultants or advisors.

The Option Plan is administered by the Stock Option Committee, whose
members are non-employee directors chosen by our Board. Subject to the
restrictions prescribed in the Option Plan, this committee has discretionary
authority to select the persons to whom, the number of shares for which, the
times and the exercise price at which options will be granted.

Options granted to an employee expire immediately upon the termination of
employment voluntarily by such employee or for cause. Employee options may be
exercised up to one year after the termination of employment due to death or
disability, or up to three months after termination for any other reason.

Upon the occurrence of a merger, consolidation or other reorganization, or
a sale of all or substantially all of the assets, of JAKKS, or a transaction
giving any person the right to elect a majority of our Board, as a result of
which a distribution of cash, securities or other property is to be made to our
stockholders, the options held by any consultant or any person who shall have
been an employee for at least one year will vest and become immediately
exercisable by such holder, even if such options would not otherwise then be
exercisable under any applicable vesting schedule or other condition to the
exercise thereof.

Incentive Stock Options must have an exercise price greater than or equal
to the fair market value of the shares underlying the option on the date of
grant (or, if granted to a holder of 10% or more of our common stock, an
exercise price of at least 110% of the underlying shares' fair market value on
the date of grant). The maximum exercise period of Incentive Stock Options is 10
years from the date of grant (or five years in the case of a holder of 10% or
more of our common stock). The aggregate fair market value (determined at the
date the option is granted) of shares with respect to which Incentive Stock
Options are exercisable for the first time by the holder of the option during
any calendar year may not exceed $100,000. If that amount exceeds $100,000, our
Board or the Stock Option Committee may designate those shares that will be
treated as Nonstatutory Stock Options.

The Option Plan provides for the inclusion in any grant of options to one
of our employees of a provision requiring the optionee, for a period of one year
after the optionee's employment is terminated, not to disclose certain of our
confidential information and, under certain circumstances, not to compete with
us or be employed by an individual or entity that competes with us.

As of March 27, 2000, we have granted options to purchase an aggregate of
1,212,250 shares of our common stock under the Option Plan. All the shares
issuable upon exercise of outstanding options granted under the Option Plan are
currently registered under the Securities Act.

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52

The following table sets forth certain information regarding options
granted to the Named Officers in 1999.

OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS

POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARS OF STOCK APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS/SARS EMPLOYEES IN OR BASE PRICE --------------------------
NAME GRANTED (#) FISCAL YEAR(1) ($/SHARE) EXPIRATION DATE 5%($) 10%($)
---- ------------ -------------- -------------- --------------- ----------- ------------

Jack Friedman........ 75,000 6.7% 16.58 8/12/05 423,000 959,250
157,500 14.1% 21.21 9/14/05 1,135,575 2,578,275
Stephen G. Berman.... 162,000 14.6% 11.04 2/9/05 607,500 1,380,240
75,000 6.7% 16.58 8/12/05 423,000 959,250
157,500 14.1% 21.21 9/14/05 1,135,575 2,578,275
Joel M. Bennett...... 30,000 2.7% 11.04 2/9/05 112,500 255,600
12,500 1.1% 18.875 12/31/05 80,188 182,063

- ---------------
(1) Options to purchase a total of 444,250 shares of our common stock were
granted to our employees, including the Named Officers, during 1999.

The following table sets forth certain information regarding options
exercised and exercisable during 1999, and the value of options held as of
December 31, 1999 by the Named Officers:

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------

Jack Friedman.................. -- -- 187,500 420,000 2,283,594 2,561,719
Stephen G. Berman.............. 124,986 2,247,805(1) 62,514 582,000 763,2197 3,900,344
Joel M. Bennett................ 40,500 697,427(1) 34,312 57,500 517,956 412,188

- ---------------
(1) The difference between (x) the product of the number of exercised options
and the average sale price per share of the common stock sold on the
exercise dates and (y) the aggregate exercise price of such options.

(2) The difference between (x) the product of the number of unexercised options
and $18.6875 (the closing sale price of the common stock on December 31,
1999) and (y) the aggregate exercise price of such options.

- - Compensation of Directors

Directors currently receive an annual cash stipend in the amount of $10,000
for serving on the Board, and are reimbursed for reasonable expenses incurred in
attending meetings. In addition, our Option Plan provides for each newly elected
non-employee director to receive at the commencement of his term an option to
purchase 37,500 shares of our common stock at their then current fair market
value, and for grants to our non-employee directors on January 1 of each year of
an option to purchase 9,375 shares of our common stock at their then current
fair market value. Options

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53

granted to a non-employee director expire upon the termination of the director's
services for cause, but may be exercised at any time during a one-year period
after such person ceases to serve as a director for any other reason.

- - Compensation Committee Interlocks and Insider Participation

Mr. Jack Friedman, our Chairman and Chief Executive Officer, is the only
member of our Compensation Committee who is or formerly was an officer or
employee of JAKKS or any of its subsidiaries. Our Board believes that Mr.
Friedman's assessment of the performance and contribution of our other employees
and his views on the appropriate manner and level of compensation for their
services are essential to the Compensation Committee's ability to evaluate and
make determinations with respect to compensation matters. However, Mr. Friedman
does not participate in any deliberations or determinations by the Compensation
Committee or our Board with respect to his own compensation.

None of our executive officers has served as a director or member of a
compensation committee (or other board committee performing equivalent
functions) of any other entity, one of whose executive officers served as a
director or a member of our Compensation Committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 27, 2000
with respect to the beneficial ownership of our common stock by (1) each of our
directors, (2) each Named Officer, and (3) all our directors and executive
officers as a group. No person is known by us to own beneficially more than 5%
of the outstanding shares of our common stock.

AMOUNT AND
NATURE OF PERCENT OF
NAME OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP(1) SHARES
---------------- ------------ -----------

Jack Friedman............................................... 742,230(2) 3.8
Stephen G. Berman........................................... 86,816(3) *
Joel M. Bennett............................................. 40,312(4) *
Robert E. Glick............................................. 74,288(5) *
Michael G. Miller........................................... 63,788(6) *
Murray L. Skala............................................. 181,419(7) 1.0
All directors and executive officers as a group (6
persons).................................................. 1,103,545(8) 5.6

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

(1) Each such beneficial owner has sole voting power and sole investment power
with respect to such shares.

(2) Includes 85,308 shares held in trusts for the benefit of children of Mr.
Friedman. Also includes 187,500 shares which Mr. Friedman may purchase upon
the exercise of certain stock options.

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

(4) Includes 19,501 shares which Mr. Bennett may purchase upon the exercise of
certain stock options.

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

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

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54

(7) Includes 96,111 shares which Mr. Skala may purchase upon the exercise of
certain stock options and 85,308 shares held by Mr. Skala as trustee under
trusts for the benefit of children of Mr. Friedman.

(8) Includes 85,308 shares held in trusts for the benefit of children of Mr.
Friedman and an aggregate of 529,314 shares which the directors and
executive officers may purchase upon the exercise of certain stock options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

One of our directors, Murray L. Skala, is a partner in the law firm of
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, which has performed, and is
expected to continue to perform, legal services for us. In 1999, we incurred
approximately $1.0 million for legal fees and reimbursable expenses payable to
that firm.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report on Form
10-K:

(1) Financial Statements (included in Item 8):

- Independent Auditors' Report

- Consolidated Balance Sheets as of December 31, 1998 and 1999

- Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999

- Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999

- Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999

- Notes to Consolidated Financial Statements

(2) Financial Statement Schedules (included in Item 8)

- Schedule II -- Valuation and Qualifying Accounts

(3) Exhibits

EXHIBIT
NUMBER DESCRIPTION
------- -----------

53
55

EXHIBIT
NUMBER DESCRIPTION
------- -----------

3.1.3 Certificate of Elimination of All Shares of 4% Redeemable
Convertible Preferred Stock of the Company(7)
3.1.4 Certificate of Amendment of Restated Certificate of
Incorporation of the Company(11)
3.2 By-Laws of the Company(1)
3.2.1 Amendment to By-Laws of the Company(2)
10.1 Third Amended and Restated 1995 Stock Option Plan(9)(*)
10.1A 1999 Amendment to Third Amended and Restated 1995 Stock
Option Plan (15)(*)
10.2 Employment Agreement between the Company and Jack Friedman
dated January 1, 1998(8)(*)
10.2.1 Amendment, dated January 1, 1999, to Employment Agreement
between the Company and Jack Friedman(12)(*)
10.3 Employment Agreement between the Company and Stephen G.
Berman dated January 1, 1998(8)(*)
10.3.1 Amendment, dated January 1, 1999, to Employment Agreement
between the Company and Stephen G. Berman(12)(*)
10.4 Employment Agreement between the Company and Jack Friedman
dated as of July 1, 1999 (16)(*)
10.4.1 Amendment, dated as of February 7, 2000, to Employment
Agreement between the Company and Jack Friedman(17)
10.5 Employment Agreement between the Company and Stephen G.
Berman dated as of July 1, 1999 (16)(*)
10.5.1 Amendment, dated as of February 7, 2000, to Employment
Agreement between the Company and Stephen G. Berman (17)
10.6 Purchase Agreement among the Company, JAKKS Acquisition
Corp., Road Champs, Inc., Road Champs Ltd., Die Cast
Associates, Inc. and the shareholders of Road Champs, Inc.
dated January 21, 1997(3)
10.7.1 Office Lease dated June 18, 1997 between the Company and
Malibu Vista Partners(8)(P)
10.7.2 Supplemental Lease dated August 10, 1998 between Malibu
Vista Partners and the Company(10)
10.7.3 Third Amendment dated January 25, 1999 to Lease between the
Company and Malibu Vista Partners (12)
10.8 Lease of the Company's warehouse space at 7 Patton Drive,
West Caldwell, New Jersey and amendment thereto(3)
10.8A Office Lease dated March 27, 1998 between the Company and
Hundal of Union L.P.(8)(P)
10.9 Lease of the Company's showroom at the Toy Center South, 200
Fifth Avenue, New York, New York(1)
10.10 Lease of the Company's showroom at the Toy Center North,
1107 Broadway, New York, New York(3)
10.11 Tenancy Agreement dated March 14, 1998 between the Company
and Astoria Investment Company, Ltd.(8)(P)
10.11A Office Lease dated September 24, 1998 between Astoria
Investment Company Limited and Road Champs Ltd.(10)

54
56

EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.11B Lease Agreement dated June 2, 1999 between Astoria
Investment Company Limited and Road Champs Limited(13)
10.12 License Agreement with Titan Sports, Inc. dated October 24,
1995(1)
10.12.1 Amendment to License Agreement with Titan Sports, Inc. dated
April 22, 1996(4)
10.12.2 Amendment to License Agreement with Titan Sports, Inc. dated
January 21, 1997(4)
10.12.3 Amendment to License Agreement with Titan Sports, Inc. dated
December 3, 1997(8)
10.12.4 Amendment to License Agreement with Titan Sports, Inc. dated
January 29, 1998(8)
10.12.5 Amendment to License Agreement with Titan Sports, Inc. dated
June 24, 1998(12)
10.12.6 Amendment to License Agreement with Titan Sports, Inc. dated
February 11, 1999(12)
10.13 International License Agreement with Titan Sports, Inc.
dated February 10, 1997(4)
10.13.1 Amendment to International License Agreement with Titan
Sports, Inc. dated December 3, 1997(8)
10.13.2 Amendment to International License Agreement with Titan
Sports, Inc. dated January 29, 1998(8)
10.14 License Agreement with Saban Merchandising, Inc. and Saban
International N.V. dated May 21, 1996, with amendment dated
October 31, 1996(4)
10.15 License Agreement with Wow Wee International dated June 1,
1996(4)
10.16 Agreement with Quantum Toy Concepts Pty, Ltd. dated July
1996(4)
10.17 Employment Agreement dated as of October 1, 1999 between the
Company and Michael Bianco(15)(*)
10.18 Employment Agreement dated as of October 1, 1999 between the
Company and Joshua H. Pokempner(15)(*)
10.19 Warrant to purchase 150,000 shares of Common Stock dated
January 8, 1997 issued to Joseph Charles & Associates,
Inc.(8)
10.20 Office Lease dated November 18, 1999 between the Company and
Winco Maliview Partners(17)
10.21 Option Agreement dated August 28, 1997 between the Company
and Silverman Heller Associates(8)
10.22 Consulting Agreement dated July 30, 1997 between the Company
and Silverman Heller Associates(8)
10.23 Option Agreement dated August 28, 1997 between the Company
and Joseph Charles & Associates, Inc.(5)
10.24 Engagement Letter dated August 28, 1997 between the Company
and Joseph Charles & Associates, Inc.(5)
10.25 Consulting Agreement between the Company and Sheldon Weiner
Sales Organization, Inc. dated June 18, 1996(5)
10.26.1 Stock Option Agreement between the Company and Sheldon
Weiner Sales Organization, Inc. dated June 18, 1996(5)
10.26.2 Restated Stock Option Agreement between the Company and
Sheldon Weiner Sales Organization, Inc. dated June 18,
1996(5)
10.27 Restated Option Agreement between the Company and Murray
Bass dated September 1, 1995(5)

55
57

EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.28 Restated Option Agreement between the Company and Joel
Bennett dated September 1, 1995(5)
10.29 Restated Option Agreement between the Company and Gina
Hancock dated September 1, 1995(5)
10.30 Restated Option Agreement between the Company and Wills Hon
dated September 1, 1995(5)
10.31 Restated Option Agreement between the Company and Bruce Katz
dated September 1, 1995(5)
10.32 Trademark Purchase Agreement dated October 24, 1997 between
the Company and Azrak-Hamway International, Inc.(6)
10.33 $1,200,000 Promissory Note dated October 24, 1997 of the
Company payable to Azrak-Hamway International, Inc.(6)
10.34 Manufacturing and Supply Agreement dated October 24, 1997
between the Company and Azrak- Hamway International, Inc.(6)
10.35 Security Agreement dated October 24, 1997 between the
Company and Azrak-Hamway International, Inc.(6)
10.36 Stock Purchase Agreement dated as of September 22, 1999
among the Company, Flying Colors Toys, Inc. and its
Shareholders(15)
10.36.1 First Amendment dated as of September 30, 1999 to Stock
Purchase Agreement(15)
10.37 Escrow Agreement dated as of September 30, 1999 among Joshua
H. Pokempner, as agent, the Company and Bank One Trust
Company, NA, as escrow agent(15)
10.38 Transition Services Agreement dated as of October 1, 1999
between Colorbok LLC and Flying Colors Toys, Inc.(15)
10.39 Lease dated as of October 1, 1999 between Shore Properties
LLC and Flying Colors Toys, Inc.(15)
10.40 [RESERVED]
10.41 Series A Cumulative Convertible Preferred Stock Purchase
Agreement dated April 1, 1998 among the Company, Renaissance
Capital Growth & Income Fund III, Inc. and ProFutures Bridge
Capital Fund, L.P.(7)
21 Subsidiaries of the Company(17)
23 Consent of Pannell Kerr Forster, Certified Public
Accountants, A Professional Corporation, Los Angeles,
California(17)
27 Financial Data Schedule(17)

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

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

(3) Filed previously as an exhibit to the Company's Current Report on Form 8-K,
filed February 21, 1997, or as schedule 4.2(iii) thereto, and incorporated
herein by reference.

(4) Filed previously as an exhibit to the Company's Annual Report on Form
10-KSB for its fiscal year ended December 31, 1996, and incorporated herein
by reference.

56
58

(5) Filed previously as an exhibit to the Company's Registration Statement on
Form S-8 (File No. 333-35053), effective September 5, 1997, and
incorporated herein by reference.

(6) Filed previously as an exhibit to the Company's Current Report on Form 8-K,
filed November 7, 1997, and incorporated herein by reference.

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

(8) Filed previously as an exhibit to the Company's Annual Report on Form
10-KSB for its fiscal year ended December 31, 1997, and incorporated herein
by reference.

(9) Filed previously as Appendix A to the Company's definitive Proxy Statement
for its 1998 Annual Meeting of Stockholders, filed June 23, 1998, and
incorporated herein by reference.

(10) Filed previously as an exhibit to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1998, filed November 16, 1998,
and incorporated herein by reference.

(11) Filed previously as exhibit 4.1.2 to the Company's Registration Statement
on Form S-3 (File No. 333-74717), filed March 19, 1999, and incorporated
herein by reference.

(12) Filed previously as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, filed April 22, 1999, and
incorporated herein by reference.

(13) Filed previously as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999, filed August 9, 1999, and
incorporated herein by reference.

(14) Filed previously as an exhibit to the Company's Current Report on Form 8-K,
filed October 19, 1999, and incorporated herein by reference.

(15) Filed previously as an exhibit to the Company's Registration Statement on
Form S-8 (File No. 333-90055), filed November 1, 1999, and incorporated
herein by reference.

(16) Filed previously as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999, filed November 3, 1999, and
incorporated herein by reference.

(17) Filed herewith.

(P) Filed in paper format pursuant to a hardship exemption under Regulation
232.202 of Regulation S-T.

(*) Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

The Company filed a Current Report on Form 8-K on October 19, 1999 and an
amendment thereto on Form 8-K/A on November 9, 1999, relating to the Company's
acquisition of Flying Colors Toys, Inc., which closed on October 5, 1999
(effective as of October 1, 1999). The Current Report, as amended, included
audited financial statements of the Flying Colors Division of Flying Colors
Toys, Inc. [Financial Statements of Businesses Acquired] and JAKKS Pacific, Inc.
Unaudited Pro Forma Consolidated Financial Statements [Pro Forma Financial
Information], which were incorporated by reference from the Company's
Registration Statement on Form S-3 (Reg. No. 333-90357), pages F-28 to F-45.

57
59

SIGNATURES

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

Dated: March 29, 2000 JAKKS PACIFIC, INC.

By: /s/ JACK FRIEDMAN
------------------------------------
Jack Friedman
Chairman and
Chief Executive Officer

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

SIGNATURE TITLE DATE
--------- ----- ----

/s/ JACK FRIEDMAN Chairman of the Board March 29, 2000
- ----------------------------------------------------- of Directors and
Jack Friedman Chief Executive Officer
(Principal Executive Officer)

/s/ JOEL M. BENNETT Chief Financial Officer March 29, 2000
- ----------------------------------------------------- (Principal Financial Officer
Joel M. Bennett and
Principal Accounting Officer)

/s/ STEPHEN G. BERMAN Director March 29, 2000
- -----------------------------------------------------
Stephen G. Berman

/s/ ROBERT E. GLICK Director March 29, 2000
- -----------------------------------------------------
Robert E. Glick

/s/ MICHAEL G. MILLER Director March 29, 2000
- -----------------------------------------------------
Michael G. Miller

/s/ MURRAY L. SKALA Director March 29, 2000
- -----------------------------------------------------
Murray L. Skala

58
60

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------- -----------

3.1 Restated Certificate of Incorporation of the Company(1)
3.1.1 Certificate of Designation of 4% Redeemable Convertible
Preferred Stock of the Company(6)
3.1.2 Certificate of Designation and Preferences of Series A
Cumulative Convertible Preferred Stock of the Company(7)
3.1.3 Certificate of Elimination of All Shares of 4% Redeemable
Convertible Preferred Stock of the Company(7)
3.1.4 Certificate of Amendment of Restated Certificate of
Incorporation of the Company(11)
3.2 By-Laws of the Company(1)
3.2.1 Amendment to By-Laws of the Company(2)
10.1 Third Amended and Restated 1995 Stock Option Plan(9)(*)
10.1A 1999 Amendment to Third Amended and Restated 1995 Stock
Option Plan (15)(*)
10.2 Employment Agreement between the Company and Jack Friedman
dated January 1, 1998(8)(*)
10.2.1 Amendment, dated January 1, 1999, to Employment Agreement
between the Company and Jack Friedman(12)(*)
10.3 Employment Agreement between the Company and Stephen G.
Berman dated January 1, 1998(8)(*)
10.3.1 Amendment, dated January 1, 1999, to Employment Agreement
between the Company and Stephen G. Berman(12)(*)
10.4 Employment Agreement between the Company and Jack Friedman
dated as of July 1, 1999 (16)(*)
10.4.1 Amendment, dated as of February 7, 2000, to Employment
Agreement between the Company and Jack Friedman(17)
10.5 Employment Agreement between the Company and Stephen G.
Berman dated as of July 1, 1999 (16)(*)
10.5.1 Amendment, dated as of February 7, 2000, to Employment
Agreement between the Company and Stephen G. Berman (17)
10.6 Purchase Agreement among the Company, JAKKS Acquisition
Corp., Road Champs, Inc., Road Champs Ltd., Die Cast
Associates, Inc. and the shareholders of Road Champs, Inc.
dated January 21, 1997(3)
10.7.1 Office Lease dated June 18, 1997 between the Company and
Malibu Vista Partners(8)(P)
10.7.2 Supplemental Lease dated August 10, 1998 between Malibu
Vista Partners and the Company(10)
10.7.3 Third Amendment dated January 25, 1999 to Lease between the
Company and Malibu Vista Partners (12)
10.8 Lease of the Company's warehouse space at 7 Patton Drive,
West Caldwell, New Jersey and amendment thereto(3)
10.8A Office Lease dated March 27, 1998 between the Company and
Hundal of Union L.P.(8)(P)
10.9 Lease of the Company's showroom at the Toy Center South, 200
Fifth Avenue, New York, New York(1)

59
61

EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.10 Lease of the Company's showroom at the Toy Center North,
1107 Broadway, New York, New York(3)
10.11 Tenancy Agreement dated March 14, 1998 between the Company
and Astoria Investment Company, Ltd.(8)(P)
10.11A Office Lease dated September 24, 1998 between Astoria
Investment Company Limited and Road Champs Ltd.(10)
10.11B Lease Agreement dated June 2, 1999 between Astoria
Investment Company Limited and Road Champs Limited(13)
10.12 License Agreement with Titan Sports, Inc. dated October 24,
1995(1)
10.12.1 Amendment to License Agreement with Titan Sports, Inc. dated
April 22, 1996(4)
10.12.2 Amendment to License Agreement with Titan Sports, Inc. dated
January 21, 1997(4)
10.12.3 Amendment to License Agreement with Titan Sports, Inc. dated
December 3, 1997(8)
10.12.4 Amendment to License Agreement with Titan Sports, Inc. dated
January 29, 1998(8)
10.12.5 Amendment to License Agreement with Titan Sports, Inc. dated
June 24, 1998(12)
10.12.6 Amendment to License Agreement with Titan Sports, Inc. dated
February 11, 1999(12)
10.13 International License Agreement with Titan Sports, Inc.
dated February 10, 1997(4)
10.13.1 Amendment to International License Agreement with Titan
Sports, Inc. dated December 3, 1997(8)
10.13.2 Amendment to International License Agreement with Titan
Sports, Inc. dated January 29, 1998(8)
10.14 License Agreement with Saban Merchandising, Inc. and Saban
International N.V. dated May 21, 1996, with amendment dated
October 31, 1996(4)
10.15 License Agreement with Wow Wee International dated June 1,
1996(4)
10.16 Agreement with Quantum Toy Concepts Pty, Ltd. dated July
1996(4)
10.17 Employment Agreement dated as of October 1, 1999 between the
Company and Michael Bianco(15)(*)
10.18 Employment Agreement dated as of October 1, 1999 between the
Company and Joshua H. Pokempner(15)(*)
10.19 Warrant to purchase 150,000 shares of Common Stock dated
January 8, 1997 issued to Joseph Charles & Associates,
Inc.(8)
10.20 Office Lease dated November 18, 1999 between the Company and
Winco Maliview Partners(17)
10.21 Option Agreement dated August 28, 1997 between the Company
and Silverman Heller Associates(8)
10.22 Consulting Agreement dated July 30, 1997 between the Company
and Silverman Heller Associates(8)
10.23 Option Agreement dated August 28, 1997 between the Company
and Joseph Charles & Associates, Inc.(5)
10.24 Engagement Letter dated August 28, 1997 between the Company
and Joseph Charles & Associates, Inc.(5)
10.25 Consulting Agreement between the Company and Sheldon Weiner
Sales Organization, Inc. dated June 18, 1996(5)

60
62

EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.26.1 Stock Option Agreement between the Company and Sheldon
Weiner Sales Organization, Inc. dated June 18, 1996(5)
10.26.2 Restated Stock Option Agreement between the Company and
Sheldon Weiner Sales Organization, Inc. dated June 18,
1996(5)
10.27 Restated Option Agreement between the Company and Murray
Bass dated September 1, 1995(5)
10.28 Restated Option Agreement between the Company and Joel
Bennett dated September 1, 1995(5)
10.29 Restated Option Agreement between the Company and Gina
Hancock dated September 1, 1995(5)
10.30 Restated Option Agreement between the Company and Wills Hon
dated September 1, 1995(5)
10.31 Restated Option Agreement between the Company and Bruce Katz
dated September 1, 1995(5)
10.32 Trademark Purchase Agreement dated October 24, 1997 between
the Company and Azrak-Hamway International, Inc.(6)
10.33 $1,200,000 Promissory Note dated October 24, 1997 of the
Company payable to Azrak-Hamway International, Inc.(6)
10.34 Manufacturing and Supply Agreement dated October 24, 1997
between the Company and Azrak- Hamway International, Inc.(6)
10.35 Security Agreement dated October 24, 1997 between the
Company and Azrak-Hamway International, Inc.(6)
10.36 Stock Purchase Agreement dated as of September 22, 1999
among the Company, Flying Colors Toys, Inc. and its
Shareholders(15)
10.36.1 First Amendment dated as of September 30, 1999 to Stock
Purchase Agreement(15)
10.37 Escrow Agreement dated as of September 30, 1999 among Joshua
H. Pokempner, as agent, the Company and Bank One Trust
Company, NA, as escrow agent(15)
10.38 Transition Services Agreement dated as of October 1, 1999
between Colorbok LLC and Flying Colors Toys, Inc.(15)
10.39 Lease dated as of October 1, 1999 between Shore Properties
LLC and Flying Colors Toys, Inc.(15)
10.40 [RESERVED]
10.41 Series A Cumulative Convertible Preferred Stock Purchase
Agreement dated April 1, 1998 among the Company, Renaissance
Capital Growth & Income Fund III, Inc. and ProFutures Bridge
Capital Fund, L.P.(7)
21 Subsidiaries of the Company(17)
23 Consent of Pannell Kerr Forster, Certified Public
Accountants, A Professional Corporation, Los Angeles,
California(17)
27 Financial Data Schedule(17)

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

61
63