To mark the strategic move, the company has dropped the word "toys" from its corporate name and is now counting on its new furniture division -- called Mushroom, as in "soft and cozy" -- to boost annual sales by more than 10 per cent in 2005 alone, co-founder Anton Rabie said.

(That doesn't include any potential gains from the core toy business.)

The Toronto-based company, which has annual sales totalling $300-million-plus, has also launched an entertainment arm that produces programming tied to its products, as well as its own television commercials.

"We felt being in toys was too narrow," Mr. Rabie, 33, said in an interview as Pop goes the Weasel and other kids' tunes drifted into his office from the boardroom next door.

"It all comes down to our appetite for growth. A lot of toys have short life cycles. That is dangerous . . . The brutal fact is that the toy industry is dangerous."

Spin Master's expansion underlines just how difficult the $1.4-billion Canadian toy business has become, and the need to plan strategically beyond the latest hot toy fad because it dies so quickly, industry observers said.

The declining birth rate has resulted in fewer children playing with toys, while many youngsters grow out of toys as young as the age of eight, turning their attention to video games and other forms of entertainment, they said.

Global toy companies such as East Aurora, N.Y.-based Fisher-Price dominate the industry.

Meanwhile, toy retailers are being pushed out of business as giant discounters -- particularly Bentonville, Ark.-based Wal-Marts Stores Inc. -- slash prices.

Children's bedroom décor, on the other hand, is a burgeoning field as consumers focus more on their homes and let their kids influence the purchases, observers said.

"The toy industry has been pretty flat over the past few years," said Jeff Hurst, a director of the Canadian Toy Association and general manager of educational toy company LeapFrog Canada Inc. in Oakville, Ont. "Spin Master is a great example of a company that is looking for opportunities to diversify."

Spin Master made its biggest acquisition last month when it signed a "multimillion-dollar" deal to acquire North American rights to the trademarks of British-based toy and entertainment firm Worlds Apart Ltd. Its products include the Ready Bed inflatable roll-up bed (for sleepovers) and Ready Room fantasy decor set.

Key to Spin Master's furniture strategy is linking the merchandise to popular licences, such as Batman and SpongeBob SquarePants.

"The sky's the limit for us . . . We really understand kids, trends for kids, what kids want. We're going after what kids want," Mr. Rabie said. His officials are scouring the world for future hot licences to stamp on the products.

Spin Master has produced its first video, which will be released in stores next spring and entails 40 minutes of ballet instructions for the company's new Bella Dancerella ballet-teaching kit. "We need to become very entertainment focused as a company," Mr. Rabie said. "Entertainment drives kids' desires."

In past years, privately held Spin Master has enjoyed healthy annual sales gains because it has hit on some top sellers, said Mr. Hurst of the toy association, who once worked at the company. But those gains can be easily wiped out if a toy company can't keep on coming up with winners.

Last year, Spin Master distributed in North America Mighty Beanz, a twist on the old Mexican jumping bean that was one of the hottest toys of the crucial holiday season.

Since its launch last summer, Mighty Beanz (about $6 to $8 a pack) has rung up more than $65-million of retail sales, a company spokesman said. Other Spin Master stars include Air Hogs planes, Shrinky Dinks plastic creations and the McDonald's McFlurry ice cream maker.

So far this year, there is no "must-have" toy on the market, Mr. Hurst said. Cabbage Patch Dolls, hot toy of yesteryear, are coming back, as are Tamagotchi virtual pet toys.

As for Spin Master, it is pitching this season the Bella Dancerella kit (about $50) and AquaDoodle (about $35), a craft toy with pens and stampers that work on a mat equipped with sensors, as well as spinoffs of Mighty Beanz and Air Hogs.

While Spin Master has no "home-run" hit product for this holiday period, "we have all these triples," including the furniture, Mr. Rabie said.