The Middleton Doll Company

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The Middleton Doll Company

West 239 North 1700 Busse Road
Waukesha, Wisconsin 53188-1160
U.S.A.
Telephone: (262) 523-4300
Toll Free: (800) 242-3285
Fax: (262) 523-4193
Web site: http://www.leemiddleton.com

Public Company
Founded: 1978
Employees: 2
Sales: $27.2 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: DOLL
NAIC: 525930 Real Estate Investment Trusts

Formerly Bando McGlocklin Capital Corporation, The Middleton Doll Company is primarily involved in the doll business through its Ohio subsidiary Lee Middleton Original Dolls, Inc., although technically the Wisconsin firm remains a real estate investment trust. Lee Middleton Original Dolls, founded by the late doll designer Lee Middleton Urick, is a leading maker of realistic, hand-sculpted, collectible dolls. Since acquiring the operation in 1993 because of a bad real estate loan, the parent corporation has become so focused on dolls that it adopted the Middleton name in 2001 in order to help investors better evaluate its business. It even chose DOLL as its ticker symbol on the NASDAQ. Middleton Doll continues to operate Bando McGlocklin Small Business Lending Corporation, an REIT, as well as timepiece maker License Products, Inc., which Bando McGlocklin also picked up because of a bad loan. In addition, management runs a separate, publicly traded company, InvestorsBancorp, which was spun off in 1993.

Lee Middleton Starting Business in Her Kitchen in 1979

Lee Middleton grew up in Springfield, Ohio, interested in a variety of arts and crafts. Because her high school lacked formal art studies she had to settle on a mechanical drawing class to satisfy her aspirations in the graphic arts. Other than taking a few courses at an artist’s school in Arizona, she was essentially self-taught, forging her own unique path. Middleton was deeply devoted to Christianity, yet fascinated by the workings of crime and police laboratories. She also had a keen interest in anatomy. All of these influences and skills would eventually come together in her doll creations. Lee Middleton knew some success as a painter and writer, selling verses to major greeting card companies, but it was not until 1978, when she and her family were living in Coolville, Ohio, that she decided to try sculpting porcelain dolls at her kitchen table. Her interest in anatomy led her to depict her baby dolls as realistically as possible, even down to the proper weight, and her religious faith infused them with a spirit that struck a cord with collectors. Eventually she would include a small Bible with each doll she sold. After she had completed several pieces that she thought were ready to show, she entered them in competition at a doll show in Columbus, Ohio. When she returned home that night her husband Lloyd was surprised to learn that not only did she win best of show she sold every doll she brought.

Encouraged by her initial success, Lee and her husband started up a business they called Kingdom Doll Originals and began to travel the doll shows, paying for a table to sell her creations to individual collectors. Her ambition at this point was simply to sell as many dolls as she could produce at home, but soon gift shops and doll shops began pressing her with wholesale orders and in order to accommodate these customers she began enlisting family members, friends, and others to make the dolls out of their own homes. In 1980 demand for Lee’s work outstripped the capacity of this makeshift kitchen table assembly line, and her husband found accommodations in the basement of an old bank building in Coolville at $50 a month. Kingdom Doll outgrew that space in four months and annexed the ground floor of the bank for $50; in another six months, the company took over the second floor for $75.

Introducing Vinyl Dolls in 1984

Although the business, which now became known as the Middleton Doll Company, was growing at a steady clip, the porcelain medium was problematic. The process was time-consuming, requiring that each part be molded and hand-cleaned before it could be fired and decorated. Because so few could be produced, the dolls had to be priced between $500 and $700. Lee Middleton decided to replicate her porcelain designs in vinyl, which would speed the production process, lower the price on the dolls to the $100 to $200 range, and as a result allow more people to own her work. The only drawback was that vinyl dolls were not considered collectibles. Lee Middleton’s artistry and innovative spirit, however, soon broke down that barrier. She pioneered the porcelain look in vinyl with her “Baby Skin” dolls. They were renowned for their lifelike qualities and became the first vinyl dolls to be numbered and signed and to achieve collectible status.

With the introduction of vinyl, sales for Kingdom Doll improved significantly, reaching $350,000 in 1984 and setting the stage for even greater growth. By 1988 employment at the company increased to 50 and sales reached $4.8 million. To accommodate the increased business, a former Coolville hardware store and the first floor of the Oddfellows Lodge were leased for dollmaking. Plans were made to build a 34,000-square-foot state-of-the-art manufacturing facility in Belpre, Ohio, housed in a structure with a gingerbread façade to make it look like a giant dollhouse. As an inducement to locate in Belpre, the city provided ten acres of land for the plant, and the $800,000 in construction costs were raised from lenders, including Bando McGlocklin, which in 1987 invested $2.4 million in Middleton Doll. To this point the dollmaker had no investors, and its financial backing was limited to a $400,000 line of bank credit.

As the business grew so too did the need for managerial assistance. For a while the Middletons had a friend named Bob McCloy, an attorney and accountant, come in once a week to help them, but soon they asked him to devote himself to the business on a full-time basis, hiring him as a vice-president in charge of administration and finance. Lloyd continued to serve as president, with Lee the chairman of the company. Even as they were named Ohio Small Business Persons of the year for 1989, however, their lack of business expertise was beginning to show. The new plant came in well over budget, due to addons and other changes, and in the end cost $1.25 million.

Moreover, their marriage splintered and the Middletons filed for divorce. In 1990 they reached a settlement that gave ownership of the business to Lee while Lloyd received $ 124,000 over four years in alimony. Before his departure Lloyd hired a new plant manager, Michael Dugay, who initiated an ill-advised marketing strategy during his brief tenure. Believing that the dolls held great potential at major urban department stores, he spent heavily on advertising, but with little effect. Early in 1991 the company, now called Lee Middleton Original Dolls, Inc., failed to keep up with the payments on its development loans. By the end of the year Dugay was gone and the company filed for Chapter 11 bankruptcy protection, which revealed that the company had liabilities of more than $4 million and assets of $2.8 million. Rather than allow the doll company to be auctioned off, Bando McGlocklin decided that its interests were best served by assuming control and attempting to turn around the business. In 1993 it purchased Lee Middleton Original Dolls for $1, gaining a 51 percent stake, with Lee Middleton owning the rest and continuing to provide the artistic talent behind the business.

The names behind Bando McGlocklin were former professional athletes Sal Bando, who played major league baseball for many years in Oakland before finishing his career with the Milwaukee Brewers, and Jon McGlocklin, who played for the Milwaukee Bucks professional basketball team. The two met and became friends at a charity golf tournament in 1977, the same year that Bando signed with the Brewers. McGlocklin was already retired and making the transition to a career after athletics, and because Bando was at the tail end of his playing days, the two agreed to pursue opportunities together. In 1980 they were approached by George Schonath about starting a venture capital firm geared toward small businesses. A business school graduate of the University of Wisconsin-Madison, the 39-year-old Schonath had extensive experience in lending, including a stint with a Wall Street investment banking firm. From 1970 to 1975 he also ran his own venture capital firm in Milwaukee. He became acquainted with Bando and McGlocklin while working with a financial planner hired by the athletes. The three men agreed to go into business, formed Bando McGlocklin Small Business Lending Corporation, and recruited some 35 investors, altogether raising $3 million in equity capital.

Company Perspectives:

The heartwarming feeling of holding a baby can be brought to life when one of our little bundles is placed in your arms. Our babies are not only beautiful, but they make you feel good. They are “The Babies That Love You Back!”

Although the Bando and McGlocklin names proved to be a useful calling card, the perception that the firm was nothing more than a scheme by a pair of ex-jocks was also a drawback. In fact, Bando gained experience working in the credit card marketing department for BankAmerica Corp. during his years in Oakland. Nevertheless, both he and McGlocklin had much to learn from Schonath, who served as chairman and chief executive officer in the new company and gave them a thorough education in commercial lending. The firm specialized in long-term loans of $ 1 million and less, which banks and insurance companies generally avoided. Licensed by the U.S. Small Business Administration as a small-business investment company (SBIC), Bando McGlocklin was able to borrow $3 from the SBA for every dollar it received in investor capital. The company’s strategy from the outset was to concentrate on making a large number of small loans for the sake of diversification rather than risking a lot of money on just a few companies. The returns might not be as spectacular, but they were more reliable. Ironically, Bando McGlocklin was uninterested in taking a stake in the companies in which it invested, unlike most other venture capital funds. Instead, it preferred to make loans and let entrepreneurs remain independent, a stance that attracted business from small business owners who, fearing interference, were reluctant to turn to venture capitalists for funding. Because it had no say in the running of the companies, it placed a great deal of emphasis on funding entrepreneurs in which it believed, one of which proved to be Lee Middleton.

Bando McGlocklin Going Public in 1987

The vast majority of Bando McGlocklin loans were backed by real estate, so that it was not surprising that in 1986 the three partners decided to start a real estate investment trust (REIT), Bishops Woods I. In May 1987 the firm went public as Bando McGlocklin Capital Corp., raising $4.2 million. Following a restructuring of the business in 1993, the SBIC was transferred to a subsidiary, InvestorsBancorp, leaving the parent company to begin converting to a REIT, a process not completed until 1997 when InvestorBancorp was created as a separate corporation to make small business loans. Bando McGlocklin now began to lease warehouse and light industrial space to businesses. By now the company also found itself inadvertently taking over some of the small businesses to which it had previously loaned money. In addition to Middleton Dolls, it also gained control of License Products Inc. The recipient of a loan in 1988, the company by 1993 was in default to Bando McGlocklin, which instead of selling off the business decided to try turning it around.

Increasingly during the 1990s the doll business became the focus of Bando McGlocklin. After losing $350,000 during the first year after emerging from bankruptcy, Lee Middleton Original Dolls began to show a profit, growing to $1.8 million in 1996. Much of that improvement was attributed to Lee Middleton’s introduction of her newborn babies line in 1994 and the 1996 expansion of her Artist Studio Collection, a line of expensive, limited-edition collectible dolls. She remained the company’s only artist, but as demand for Middleton’s infant dolls grew, it became clear that other designers would have to be hired. Lee Middleton’s health also was becoming a factor. She was forced to undergo heart bypass surgery in 1996, and then on the evening of January 30, 1997, while working at her studio, she was struck by a fatal heart attack. Finding an artist to replace her was now a daunting but imperative task.

Riva Schick, the first doll designer to have her work produced under the Middleton banner, was similar to Lee Middleton in many ways, especially her talent for realistically sculpting infants, yet she was not even familiar with her predecessor’s name. Growing up in British Columbia, Canada, Schick had to make her paper dolls because her family could not afford to buy dolls for her. Religious and self-taught like Lee Middleton, she worked as a postal clerk for 17 years before quitting to see if she could forge a career in dollmaking, which she had only taken up in 1990. Working at her kitchen table, like Lee Middleton, she produced one-of-a-kind, hand-sculpted dolls, which she sold at shows. She did not even read her first collectors magazine until 1997, from which she learned about International Toy Fair 1997. She was determined to show her work at the fair, but just as she was set to leave, her father died and she had to send her sisters-in-law to submit her work. Nevertheless, her dolls generated enough interest that several companies asked her to contact them. Nothing worked out and she was about to give up on signing with a dollmaking company when she finally called Lee Middleton Original Dolls and was asked to submit some pictures of her work. In a matter of days she was visiting the factory and was signed to sculpt for the company. Her rise to stardom in the doll world was rapid. Within months she won “Best New Doll” and “Best New Doll Artist” at the International Collectibles Exposition.

Other doll artists would soon join Schick at Lee Middleton Original Dolls, including Eva Helland, Linda Henry Boving, and Mavis Snyder. The business was trending upward, clearly outperforming Bando McGlocklin’s other investments. In 1998, following Lee Middleton’s death, the firm acquired the rest of the doll company from her estate for $5 million in cash. Lee Middleton Original Dolls became increasingly involved in the design of licensed dolls. In 2000 it worked with the Walt Disney Internet Group to create two new dolls based on Cinderella and Belle from “Beauty and the Beast.” A year later it brought out three Little League dolls based on the three words in the group’s insignia: Loyalty, Courage, and Character. Lee Middleton Original Dolls worked with Procter and Gamble to produce Gentle Touch Baby for Pampers. It also introduced Small Wonder, its first dolls that were intended for play. With such increased activity the company outgrew its Belpre facility and in 2000 moved its corporate headquarters to Columbus, Ohio.

Key Dates:

1978:: Lee and Lloyd Middleton start a doll company.
1980:: Ex-athletes Sal Bando and Jon McGlocklin form small business venture capital firm.
1987:: Bando McGlocklin invests in the doll company.
1991:: Lee Middleton Original Dolls files for bankruptcy protection.
1993:: Bando McGlockin acquires a controlling 51 percent interest in the doll company for $1.
1997:: Lee Middleton dies.
1998:: Bando McGlocklin acquires all of the doll business.
2001:: Bando McGlocklin changes the company’s name to The Middleton Doll Company.

Bando McGlocklin remained based in Wisconsin, but decided in 2001 to more closely align itself with the doll company in an effort to alleviate investor confusion on Wall Street and transfer the success of its doll business to the price of its stock. To achieve this end the parent corporation changed its name to The Middleton Doll Company. Although their names were removed, both Bando and McGlocklin maintained their roles in the organization, with Bando on the board of directors and McGlocklin serving as senior vice-president. The operating subsidiary, however, retained the name Lee Middleton Original Dolls, easing the concern of her devoted fans. It also continued to look for new opportunities. In 2001 the company opened Newborn Nursery Adoptions centers at 40 participating retailers around the country, expanding on a concept that had begun years earlier at the Belpre factory and company stores. Customers did not just purchase a Middleton doll, they adopted it, a process in which adoption papers listing the doll’s features were completed by a “nurse,” followed by the “baby” being formally presented, with photographs taken of the new family. Also in 2001 the company launched a pair of limited edition dolls. The first, She’s So Sweet, had a production run of a single day, the second, Walk in the Park, was limited to a one-week period. The birth date and time of birth were marked on each doll. In 2001 the company introduced the Artist Studio Collection, a line of 60 fine-quality dolls aimed at the serious collector or the consumer looking to create an heirloom for the family. With its doll subsidiary thriving and well positioned for continued growth, the parent corporation was likely to become even more focused on an industry it had entered only by chance.