Toymax International, Inc. History

Address:

125 East Bethpage Road
Plainview, New York 11803
U.S.A.

Telephone: (516) 391-9898
Fax: (516) 391-9151

Public Company
Incorporated: 1990 as Toymax Inc.
Employees: 65
Sales: $99.33 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: TMAX
NAIC: 339932 Game, Toy & Children's Vehicle Manufacturing; 42192 Toy & Hobby Goods & Supplies Wholesalers; 31134 Nonchocolate Confectionery Manufacturing; 551112 Offices of Other Holding Companies

Company Perspectives:

Our mission is to create, design, and develop innovative toys that promote fun and creative play for kids of all ages. We continue to develop great new products that define their niches. Our toys come alive in the hands of a child; this success has been achieved through the vision, dedication, and hard work of our management team and staff.

Company History:

Toymax International, Inc., through its wholly owned subsidiaries and divisions, makes children's toys, leisure products, and novelty candy. Its toys, which are known for being high-tech and interactive, include Laser Challenge, Creepy Crawlers, Mighty Mo's Wireless Infrared Remote Vehicles, R.A.D Robot, and a line of products featuring the pop music group The Spice Girls. Toymax's Go Fly a Kite division specializes in kites, windsocks, banners, and flags. Another holding, Florida-based Monogram International, Inc., makes gift, novelty, and souvenir merchandise. Much of Monogram's business is built around producing trademarked items for Disney, Warner Brothers, and Coca-Cola. Toymax's Candy Planet division produces novelty and themed candy items.

The Toymax Beginning: Carrying On a Legacy

The founder and president of Toymax International, Steve Lebensfeld, cut his teeth on the toy industry. As the son of a toy manufacturer, the young Lebensfeld got to spend hours of free time at his father's New York factory, which produced blackboards, magnetic letters, and other educational toys. The result was an enduring love for both toys and the business of making them. Before he was 20, Lebensfeld had designed his first toy: an indoor basketball hoop that hung on the back of a door. Shortly after graduating from college, he started his own toy company called Hot Items and, a few years later, founded another business, HG Toys Hong Kong.

In 1987, teaming up with some associates from HG Toys, Lebensfeld co-founded a third company: Toy Biz. Toy Biz met with early success when it obtained the exclusive license to produce action figures based on Marvel Comics and DC Comics. This new line of action figures, which included Batman, Superman, and Spiderman, rapidly made Toy Biz the largest action figure company in the industry.

In 1990, Lebensfeld sold Toy Biz to a group of investors and went on to co-found Toymax, Inc. that same year. His partners in the Toymax venture were David Chu, Harvey Goldberg, and Ken Price, all seasoned veterans of the toy industry. Goldberg and Price had worked with Lebensfeld at Toy Biz as sales and marketing representatives. Chu owned a toy factory in southern China and had served as a supplier for some of Lebensfeld's previous companies. The four founders, who had been working together in various capacities since the early 1980s, brought to the table a wide range of skills. Together, they set out to develop cutting-edge, highly interactive toys. "We realized that we had to be something else at Toymax," Lebensfeld said in a July 1998 interview with the Associated Press, explaining "We had to use technology and licensing, but not the way everyone else was using them."

The company was set up so that Chu's manufacturing plant in China, Jauntiway Investments Limited, produced the majority of Toymax's product. A second Chu-owned company, Tai Nam Industrial Company Limited, served as its purchasing agent. Toymax focused on selling in international markets right from the start. Concurrent with the establishment of the New York-based Toymax, the founders established its Asian counterpart, Toymax (H.K.) Limited, to sell products to international retailers and distributors.

The company's first big hit was a 1992 reintroduction of Creepy Crawlers, a classic toy activity set that had been popular in the 1960s. Creepy Crawlers--which consisted of a molding compound called "Plasti-Goop," creature- and insect-shaped molds, with a toy oven--allowed kids to make their own brightly colored plastic bugs. The retro toy proved to have enormous appeal to baby boomer parents, many of whom remembered playing with Creepy Crawlers in their own childhoods. Toymax capitalized on the popularity of its Creepy Crawlers by introducing a series of ancillary products, including multi-colored and textured Plasti-Goop and licensed character set molds featuring Batman, Spiderman, the Power Rangers, and Looney Tunes characters. The following year, Toymax took the basic idea behind Creepy Crawlers and put a feminine spin on it, introducing the Dollymaker. The Dollymaker allowed children to mold and bake their own dolls and doll outfits from "Glamour Goop."

1996--97: New Products, New Markets

The year 1996 saw the introduction of some of Toymax's most innovative and best selling toys. One of them, the Metal Molder Die Cast Factory, was the first of its kind on the retail market. The Metal Molder allowed children to die-cast metal figures and vehicles using molds, metal alloy beads, and an electric oven. However, it was another new Toymax product that drew the most attention: Laser Challenge. Laser Challenge, Toymax's first foray into action toys, was developed to capitalize on the popularity of indoor laser tag. It used an advanced infrared light technology to allow for long firing distances and outdoor play. Laser Challenge won accolades right away, receiving honors in 1996 from Family Fun Magazine and the National Association of Parenting Publications Awards. The game won consumer interest as well, fast becoming Toymax's leading brand and one of the top selling toys in the United States.

The company made its first real move toward diversification in the fall of 1996 when it formed a new subsidiary--Craft Expressions, Inc.&mdashø target the adult crafts market. The first two Craft Expressions products utilized Toymax's earlier expertise in making and selling molding kits. Creative Castings Sandstone Casting Kit allowed users to design molded sandstone sculptures, while Liquid Ceramics let them mold and bake a special ceramic compound.

Throughout 1996 and 1997, Toymax adhered to its early strategy of continually freshening existing product lines by introducing new accessories and versions. In 1997, the company introduced the girl's version of its Metal Molder set. The new product, called Precious Metals, allowed users to melt and mold metal alloy beads into pieces of jewelry that could then be decorated. Toymax also introduced an enhanced version of its popular Laser Challenge game, called Laser Challenge Pro. Extensions of other lines included new mold packs for both Creepy Crawlers and Metal Molder sets with designs based on the hit movie Jurassic Park, as well as a Classic Chevrolet mold pack for the Metal Molder.

Toymax closed out its fiscal year in March 1997 with sales of $54.7 million and net income of $3.3 million. The Laser Challenge alone accounted for more than 48 percent of the total sales. In October 1997, the company made an initial public offering of approximately 2.7 million shares. The IPO generated $22.9 million, giving Toymax the capital it needed to diversify and expand. Concurrent with its IPO, Toymax reorganized its corporate structure, forming Toymax International, Inc. as a parent company for Toymax Inc., Toymax (H.K.) Limited, and three other Toymax satellite operations incorporated in Canada, Bermuda, and the United Kingdom.

1998: Accelerated Growth

In its 1997 prospectus, Toymax listed five key tenets of its growth strategy: to extend the product lines of existing core brands; to expand into new core product categories; to expand into traditional spring toys; to develop and penetrate new markets; and to continue to license recognized brand names and characters. The two years following the company's IPO saw rapid progress along all five identified growth fronts.

In early 1998, Toymax entered the rapid-growth market for handheld electronics when it signed an exclusive agreement to distribute Nintendo licensed Mini Classics in the United States and Canada. The Nintendo Mini Classics were small, key-chain sized versions of some of Nintendo's best-known games, including Super Mario Brothers and Donkey Kong. Early in the summer of 1998, Toymax obtained another major licensing agreement, this one to produce and distribute a line of products based on the wildly popular singing group, The Spice Girls. The product line included collectible figures; a line of youth electronics including microphones, cassette players, and radios; and role-play and dress-up sets that allowed girls to doll up like their favorite Spice Girls. To promote its new Spice Girls line, Toymax shot a television commercial featuring four mini-Spice lookalikes chosen from an open audition in New York. Around 6,000 young girls showed up for the try-outs.

Among 1998's other new products were a walking, talking, radio-controlled robot named R.A.D.; a line of wireless infrared remote vehicles called Mighty Mo's; and the Arcadia Electronic Skeet Shoot. The Arcadia Electronic Skeet Shoot and R.A.D. Robot were especially hot sellers during the 1998 holiday season; according to a December 23, 1998 USA Today article, both FAO Schwarz and Toys R Us reported that the two Toymax products were being "snatched off store shelves as soon as they're stocked." Toymax was completely sold out of its R.A.D. inventory before Christmas arrived that year.

In addition to its successful line of new products, Toymax continued to push its Laser Challenge line. New versions of the toy included a deluxe set and a water set, which splashed players when they were hit by the laser beam. "Laser Challenge is our evergreen product," Lebensfeld was quoted as saying in a February 13, 1998 Newsday article, adding "We intend to expand that business, but we also want to be in more aisles of the store."

1999: New Subsidiaries

On January 6, 1999, Toymax made its first acquisition, purchasing Go Fly a Kite, a Connecticut-based manufacturer and distributor of kites, windsocks, banners, mini-flags, and WindWheels. The acquisition was strategic in several ways. Perhaps most significantly, Go Fly a Kite was a leader in a largely spring and summer business. This provided Toymax with the perfect seasonal complement to its existing business, which was heavily concentrated in the winter holiday months. In addition, the acquisition opened up new channels of distribution. Go Fly a Kite's products were largely sold in specialty retail stores, whereas Toymax's distribution had traditionally been dominated by mass market toy retailers. The combination of the two distribution networks gave Toymax a broader retail base for both its existing and newly acquired product lines.

A bit later in January, Toymax announced that it would expand its product line to include educational toys. The company's first step into educational toy territory was a licensing agreement with Knowledge Adventure, a leading maker of educational software. Under the agreement, Toymax began developing a line of hand-held and tabletop electronic games based on Knowledge Adventure's best-selling JumpStart Learning System and Blaster Learning System software.

Further diversification came a month later when Toymax formed a new division called Candy Planet. Candy Planet aimed to enter the growing candy market with a line of confections based on the popular wrestlers of the World Wrestling Federation. The new line was to include WWF themed gummi treats, lollipops, gum, and sour candies, as well as interactive candy products such as key chain gum dispensers and gumball machines. Like its licensing agreement with Knowledge Adventure, the formation of Candy Planet gave Toymax a foothold in another year-round market, helping to offset the seasonality of its core toy business.

The company continued with an aggressive diversification strategy, acquiring Monogram International, Inc. in May 1999. The Florida-based Monogram was one of the leading U.S. manufacturers of gift, novelty, and souvenir products, with annual sales of approximately $22 million. Like Lebensfeld's previous company, Toy Biz, Monogram had made a name for itself via licensing agreements with major entertainment companies. Its most significant licensing relationship was with the Walt Disney Company, with whom it had been associated for more than 25 years. Monogram also held licenses from Warner Bros. Consumer Products, Coca-Cola, and Crayola. Lebensfeld called Monogram "another key building block" in Toymax's strategy to diversify. "This acquisition is important to us because it provides tremendous opportunities to expand our portfolio of licensed product and distribution channels and allows us to cross-sell to retailers our toy, candy and kite lines," he said in a May 27, 1999 press release.

Toymax grouped its three new divisions--Go Fly a Kite, Candy Planet, and Monogram&mdashøgether under a new entity, Toymax Enterprises. The company hired Barry Shapiro, a 32-year veteran of the toy industry and the former president and CEO of Just Toys, Inc., to oversee the newly created Toymax Enterprises. Shapiro was charged with integrating the operations of the new businesses and any other future acquisitions.

Future Fun and Games

As Toymax prepared to move into the new millennium, it was holding fast to the five tenets of its growth strategy, seeking ways to expand its business beyond its original niche and encompass the full range of the leisure industry. The company planned to grow through further acquisitions as well as internal expansion. Likely acquisition targets included companies with more year-round, or "evergreen," products, strong and diverse distribution networks, and appeal to broad demographic markets. Toymax also expected to continue building on the strength of its core product lines, as well as developing new and innovative products for future introduction. It had especially ambitious plans for its Monogram subsidiary. According to a June 7, 1999 article in Florida's St. Petersburg Times, Toymax anticipated increasing Monogram's business two-and-one-half times over the course of the coming three years.

Principal Subsidiaries: Toymax Inc.; Toymax Enterprises Inc.; Toymax (H.K.) Limited (Hong Kong).

Principal Divisions: Candy Planet; Go Fly a Kite; Monogram International.

Toymax International, Inc. History

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