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Non-Tech : GRIN (Grand Toys International Inc) -- Ignore unavailable to you. Want to Upgrade?

To: Frank who wrote (394)	9/14/1999 9:53:00 PM
From: Frank McVerry	Read Replies (1) \| Respond to of 495

Frank, Here is an answer to the first part of your post (I'll do the rest tomorrow - honest!) <<There are really three components relative to the cash: 1. Is the improvement of ratios Debt/Equity. 2. Reduction on interest expense. 3. Flexibilty>> I'd want to add a 4th component to your list and that is 'Elimination of currency risk'. To me this is the most important change that the cash brings. <<What would you do if you just added 13 mil to the coffers and you were already the biggest distributor in Canada?>> If I were running the company, then I'd choose the most conservative option allowable. That is, I'd replace the line-of-credit with the cash. That way, I wouldn't have either short or long term debt and no significant currency risk. The currency risk elimination would mean an immediate increase in the applicable PE multiple to apply to the business (perhaps double). Removal of interest expense and currency costs should more than make-up for the increase in shares outstanding (that's what would have happened in '98) and produces a big improvement in margins. I think this is the way the market may be valuing them now. If I were to be more aggressive, I'd use more of the cash to push ahead with the various growth initiatives (Ark/Grand Concepts/ecommerce) but really, it doesn't seem necessary, as the basic business (Furby/Poke etc) is going to produce plenty of cash flow, through the end of the year, to finance these projects. At any time of course, GRIN may appear an attractive acquisition (at 3 times cash) to some bigger companies. After all this fuss, the business is only being valued at $8 !! (Interesting thought - last month's action in GRIN was almost like an IPO of about 2 million shares at $6.79) My 2c, Frank McV

To: Frank who wrote (394)	9/15/1999 9:59:00 PM
From: Frank McVerry	Read Replies (2) \| Respond to of 495

Frank, <<Do you feel that KIDE sales growth figures are a good match for comparision with GRIN? This being said, an evaluation of GRIN would take two components: 1. Evaluate GRIN based on part one of business (Furby, Wrestling, etc.) 2. Add a subsidiary called Pokemon to mix (Using KIDE historical sales growth patterns for given lines).>> I think the easiest thing to do for sales this year is to use GRIN's own guidance. On the radiowallstreet.com interview, I recall the CFO saying (not known for his exaggeration) that they would do up to CAN$70M (about US$47M) for the year. He also thought they would do this without any big expansion in staff (perhaps one or two extra around Christmas). They've already done $17M net sales in the two quiet quarters, so that will leave about $30M net sales in Q3 and Q4. Now gross profit should be about $10M (possibly higher as the CAN$ has significantly recovered from last year - this is a remaining currency risk but not a big one). SG&A in the Q3 and Q4 is usually around 20% of net sales, so leaving an EBITDA of $4M. Now there will not be any subtraction for interest (cash mountain in place !) and no big currency 'corrections' (possibly slight gains as in Q1 and Q2), so taking 40% for income tax should leave them with about $2.4M in net earnings. Add on the $0.45M they already made this year should give them an eps of about $0.82 for the year (based on all the options being exercised ie 3.5M shares outstanding). So by year end, they should be sitting with about $16M in cash. Subtract this from the present market cap means the business is being valued at $23.3M ie a PE of 23.3/2.85 = 8.1 based on my year-end earnings estimate - seems like a very low valuation by the market and now that recent $30 doesn't look so strange. This is all 'back-of-envelope' but likely the same calculation that many others are making, (note '$' alone = US$ in the above. Also, need to confirm the CFO sales estimate but my sound card stopped working... Anyone ?) Frank McV