Sale of signature game Phase 10 sent Fundex into ditch

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Running Fundex Games Ltd. in recent years has been anything but fun and games for President Chip Voigt.

The nightmare that culminated with the Plainfield-based company’s recent Chapter 11 bankruptcy filing began in the depths of the financial crisis, when the company’s lender yanked its more-than-$10-million line of credit.

Voigt Chip Voigt

That’s according to KC Cohen, the company’s bankruptcy attorney. After that “lightning strike,” Cohen said, “the company teetered from there.”

Fundex weathered the initial crisis by selling the family jewel—the Phase 10 card game—to Mattel Inc. in late 2010—a move that allowed it to pay off the lender.

The rummy-like game was the company’s first product when Voigt and his father, game industry veteran Pete Voigt, launched the business in 1986. It grew into the second-best-selling commercial card game in the world, behind Uno.

The company still has a large stable of games, from Gnip Gnop to What’s in Ned’s Head, which lets children pull items like moldy cheese, fake vomit and a rat from a stuffed head’s orifices. But sales have been in a free fall—from $25.8 million in 2010 to $13.3 million in 2011 and just $2.6 million so far this year.

It’s quite a comedown for a company that once had 50 employees and branch offices in Hong Kong and New York.

While Fundex doesn’t owe anything to banks, it still has daunting debt, much of it stemming from a tax hit the company took on the Phase 10 sale. Overall, Fundex listed assets of $1.5 million and liabilities of $8.9 million. The largest creditors are the Internal Revenue Service and the Indiana Department of Revenue.

Where the company goes from here is far from clear.

“We have looked at the reorganization scenario,” Cohen said. “That would require a fairly radical restructuring of the company. The sale opportunity appears to have merit. There seems to be fairly significant interest from the buying public in these assets.”

Cohen said he has fielded calls from perhaps a dozen prospective purchasers. The difficulty in going it alone, he said, is that toys-and-games is a highly capital-intensive business. Fundex works with manufacturers in China to make its products, then angles to get them shelf space in Wal-Mart and other big-box retailers.

Curiously, on Sept. 7, the same day it filed for bankruptcy protection, Fundex signed a contract to switch its product distribution from San Francisco-based University Games Corp. to Poof-Slinky Inc., maker of the iconic Slinky.

University Games initially balked, arguing in court papers that the deal would make it virtually impossible for Fundex to sell its business to anyone other than Poof-Slinky and was driven by Voigt’s desire to ensure his continued employment.

A filing by University Games said that, in the months leading up to the bankruptcy filing, Fundex marketed itself to prospective purchasers, but “the sale process failed due to the stated requirement that any sale must include an employment agreement for the debtor’s president with a large annual salary.”

The same filing said that, for unexplained reasons, Fundex did not explore distribution agreements with other companies before signing with Poof-Slinky. Henry Efroymson, an Ice Miller attorney representing University Games, declined to comment, citing the wishes of his client. Voigt did not return calls.

University Games had asked bankruptcy Judge James Coachys to block Fundex from switching to Poof-Slinky, but it withdrew its motion in late September, after working out a financial settlement with Fundex and the new distributor.

Cohen said Fundex changed distributors for sound business reasons.

“Somebody with the distribution muscle of a company like Poof-Slinky gives Fundex a better opportunity to be successful than University Games did,” he said.

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