Cultivating Healthy, Sustainable Growth

From our initial start as a U.S. traditional children’s toy company, JAKKS Pacific has grown into a diversified toy, writing instrument and leisure products force serving children and adults around the world. We imagine our growth resembling the progress of a seedling—a single twig that has blossomed into a strong, multi-branched oak.

Just as a tree has a predictable growth pattern, we have expanded our Company in calculated and manageable increments. To date, we have completed eleven acquisitions, each strategically selected to add capabilities, products, distribution channels, manufacturing capacities and/or revenues.

As an example, our 1999 acquisition of Flying Colors Toys® gave us seasoned employees who have made significant contributions to every department across the board. With the addition of Flying Colors, JAKKS became a leader in craft and activity toys—a brand new category for us and one that promised entrée into mature markets without the startup costs or risks associated with tackling a new sector from scratch.

Following Flying Colors, we acquired Pentech®, a writing instruments company with nice synergies to the crafts market. In fact, by using pens from Pentech in the Flying Colors craft kits, we became our own supplier for our crafts business. As a result, we have saved on sourcing and development costs while delivering a higher quality product.

Both acquisitions gave us marked diversification, introduced us into significant new distribution channels and, we believe, positioned us securely in the back-to-school market.

Because we record sales when we ship to our customers, September school products boost our second quarter earnings—and help offset the toy industry’s norm of predominantly third-quarter revenues. We were rewarded for our foresight and planning with a division that currently contributes 42 percent of total revenue, a division that we believe is always at the forefront of the craft and activity and writing instrument categories with an expansive source of innovative product lines.

Our subsequent acquisitions of Toymax®, a strong competitor, and Trendmasters®, another competitor with complementary and accretive products, afforded similar advantages. Specifically, they helped us truly round out our seasonal offerings with their strong outdoor lines, including Go Fly A Kite®, Funnoodle® and The Storm™ water guns, gliders and sports balls. We also gained footing in the electronics category with Singing Starz™ Video Karaoke Machine, the TV Games line of plug-and-play games, laser tag toys and radio-controlled cars.

We continue to look for potential acquisitions, keeping a keen eye on ways to expand our portfolio and market segments, strengthen our core competencies, offer cost efficiencies we could not implement as smoothly on our own or open up new avenues for profits. With a strong balance sheet and a recent infusion of over $94 million from our June 2003 Convertible Note Offering, we believe we are well-positioned to achieve our goal of $1 billion in sales in the next five years—a goal we believe we can reach through acquisitions and internal growth.

We are proud to feature children of JAKKS Pacific employees playing with our toys, writing instruments and leisure products throughout the seasons.

Products featured in the Spring section: WWE™ figure, Road Champs RXS® truck, Nick-tivities Gak Splat™ Racquet, Disney Jr. Sports Goofy Golf set, Dragon Ball Z® figure, Hello Kitty® Memory Maker, Nick-tivities SplatterDome™ and Switch ’Em Up SpongeBob SquarePants™.