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Mitch and Ace,

The conference call resolved my concerns regarding the inventory. If you will recall, JAKKs typically ships product directly from the manufacturer to the retailer. This, obviously, limits and controls inventory. Two things happened last quarter that substantially increased inventory.
First, the Flying Colors acquisition. Apparently, flying colors product is not drop shipped like the other product, thus, increased inventory. Management attributed $10 million of the inventory to Flying Colors. They also said the $10 million number would remain constant. Clearly, our concern over inventory is based on the premise that inventory is listed as an asset, but can quickly become a liability if not sold. My first fear was that this inventory was unsold Christmas product. This apparaently is not the case at all. Instead $10 million is attributable to the status quo for Flying Colors.
Management said they intend to maintain $2 million for the rest of the business.
The balance of the inventory was attributed to the shutdown of industry in China until the passing of the Chinese New Year. I know nothing about this holiday, but, apparently, all things shut down.
With respect A/R, management confirmed this was seasonal and that 75% of A/R has been paid. What I've found is that the major retailers (Walmart, etc.) have a concrete net 60 days policy. Additionally, the 60 begins to run on receipt of the invoice. This typically means 60-72 days outstanding. Based on the high volume of sales to these large retailers for Christmas, this makes sense. Also, the fact they have now seen the majority of it turn coincides with that timing.
Conference call was very calming and very bullish. They clearly are excited about new product, which is encouraging to the extent we are able to wean ourselves off of WWF dependence. They clearly are after some of the Harry Potter licenses. Buzz around the Extreme sports product indutry is that industry wide they expect 300 million in sales this year. We are estimated to have 50-70% of that market now. Also, the Charlies Angels movie product master license could be a big winner (movie stars Cameron Diaz and Drew Barrymore). Management said very little was given up for that license so the downside risk is virtually nil.
Management said they are very comfortable with $1.65 next year and see 30% growth as a "worst, worst case scenario."
They shipped 100,000,000 pieces of product this year compared to 1,000,000 a year ago.
Very bullish call. A must listen. And frankly, very comforting. I have been concerned about any drop in the WWF popularity and how it would affect the company. The aforementioned estimates by the company were based on WWF sales leveling off. Very comforting.

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