(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission File No. 0-22372.

(Exact Name of Registrant as Specified in its Charter)

Nevada                                          98-0163743                                                   

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization Identification No.)

(Address of principal executive offices)

(Registrant's telephone number, including Area Code)

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No _____

Indicate the number of shares outstanding of each of the Issuer's classes of common equity, as of November 14, 2003: 2,835,244

GRAND TOYS INTERNATIONAL, INC.

Consolidated Balance Sheets

Consolidated Statements of Operations, (Unaudited)

(1) Includes a reimbursement of $309,000 of payroll taxes which was erroneously paid in a prior year.

Consolidated Statements of Stockholders' Equity and Comprehensive Income (Unaudited)

For the nine months ended September 30,

Notes to Unaudited Consolidated Financial Statements

Grand Toys International, Inc., a Nasdaq SmallCap listed Company, is organized under the laws of the State of Nevada. Its principal business activity, through its wholly-owned Canadian subsidiary, is the distribution of toys and related items.

1. Significant accounting policies:

1. Grand Toys Ltd., a wholly-owned Canadian subsidiary, uses the Canadian dollar as its functional currency and translates its assets and liabilities into US dollars at the exchange rate prevailing at the balance sheet date and sales, expenses and cash flows are translated at the average exchange rate for the year. The resulting currency translation adjustments are accumulated and reported in other comprehensive income.
2. Other monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies are translated at the rates of exchange prevailing at the transaction dates. All exchange gains and losses are included in income.

10. Employee stock option plan:

11. Comprehensive income:

12. Use of estimates:

2. Loan receivable:

3. Prepaid expenses:

7. Capital stock

1. Authorized capital also includes 5,000,000, $0.001 par value preferred shares, issuable in series with such designation, rights and preferences as may be determined from time to time by the Board of Directors. There are no shares issued and outstanding at September 30, 2003.

2. Each Series B Preferred share will automatically be converted, upon approval by the stockholders, into one share of the Company's common stock at an exercise price of $1.00 per share and a warrant to purchase three shares of the Company's common stock at an exercise price of $0.01 per share.
3. Share transactions:

• January 2002

• February 2002

• June 2002

7. Capital stock (continued):

• July 2002

• October 2002

• December 2002

• April 2003

• August 2003

7. Capital stock (continued):

4. A summary of the number of shares of common stock outstanding and share transactions since January 1, 2002 is as follows:

8. Stock options and warrants (continued):

8. Stock options and warrants (continued):

9. Discontinued operations:

9. Discontinued operations: (continued):

1. Operating and geographic information:

2. Other information:

1. Foreign currency risk management:

From time to time the Company enters into forward foreign exchange contracts to minimize its foreign currency exposure on purchases. The contracts oblige the Company to buy US dollars in the future at predetermined exchange rates. The contracts are not used for trading purposes. The Company's policy is to enter into forward foreign exchange contracts on a portion of its purchases anticipated in the next selling season. Gains and losses on forward exchange contracts are recorded in income and generally offset transaction gains or losses on the foreign currency cash flows, which they are intended to hedge.

At September 30, 2003, the Company had no contracts to purchase US dollars.

2. Fair values:

Fair value estimates are made as of a specific point in time, using available information about the financial instruments. These estimates are subjective in nature and often cannot be determined with precision.

The fair value of the Company's accounts receivable, due from affiliated companies, bank indebtedness, trade and other payables approximate their carrying value due to the immediate or short-term maturity of these financial instruments.

3. Credit risk and economic dependence:

4. Interest rate risk:

17. Supplemental disclosure of cash flow information:

The following should be read in conjunction with the consolidated financial statements included in this 10-Q and the December 31, 2002 Annual Report.

Forward-looking statements.

This Form 10-Q contains forward-looking statements about events and circumstances that have not yet occurred. For example, statements including terms such as the Company "expects" or "anticipates" are forward-looking statements. Investors should be aware that the Company's actual results may differ materially from the Company's expressed expectations because of risks and uncertainties about the future. The Company will not necessarily update the information in this Form 10-Q if and when any forward-looking statement later turns out to be inaccurate. Risks and uncertainties that may affect the Company's future results and performance include, but are not limited to, the following: intense competition and pricing pressures in the toy industry; the general consolidation in the toy industry; whether the Company's general strategy with respect to the toy industry and the Company's implementation of that strategy will correctly anticipate key trends in the toy industry; the Company's ability to retain its product lines; the Company's relationships with retailers and other issues with respect to the Company's distribution channels. Additional information about factors that could affect future results and events is included elsewhere in this Form 10-Q, in the Company's fiscal 2002 Form 10-K and in other reports filed with the Securities and Exchange Commission.

During the third quarter the Company's management has been actively negotiating and conducting due diligence in connection with two potential transactions consisting of (1) the acquisition of a privately

owned, New York based developer, manufacturer and distributor of licensed and non-licensed toy, novelty and gift products; and (2) the acquisition of a Hong Kong based holding company with operating

subsidiaries that develop products for sale under company owned brands and supervises the outsourced manufacture of such products, designs and develops proprietary products for third parties, manufacture moulds and hold intellectual property rights. The Hong Kong Company is a major supplier of products to Grand.

In the Company's audited financial statements for the years ended December 31, 2002, and 2001, the Company recognized that it had certain issues which raised substantial doubt about the Company's ability to continue as a going concern. The reasons cited were the Company's recurring losses. This was noted in KPMG's audit report on those financial statements. In 2002, the Company increased its credit facility, reduced its losses, and implemented a restructuring plan to return to profitability.

As part of its restructuring plan, the Company has significantly reduced its operating costs, by closing one of its Canadian locations, sub-letting a portion of the Company's main facility and consolidating its U.S. operations into the Canadian subsidiary. In addition, the Company continues to add profitable new product lines, and focuses on strong retail sell-through. At this time, based on 2003 forecasts, the current credit facility appears to be sufficient to meet the Company's working capital needs. For the third quarter of 2003, the Company is reporting net earnings as a result of the implementation of its restructuring efforts.

Net sales consist of sales of products to customers after deduction of customer cash discounts, freight and warehouse allowances, and volume rebate allowances. Sales are recorded when the merchandise is shipped.

The cost of goods sold for products imported as finished goods includes the cost of the product in the appropriate domestic currency, duty and other taxes, and freight and brokerage charges. Royalties to Grand Canada suppliers are not contingent upon the subsequent sales of the suppliers'products are included in the price paid for such products.

Major components of selling, general and administrative expenses include: payroll and fringe benefits; advertising expense, which includes the cost of production of television commercials and the cost of air time; advertising allowances paid to customers for cooperative advertising programs; and royalty expense. Royalties include payments by Grand Canada to licensors of character properties and to manufacturers of toy products if such payments are contingent upon subsequent sales of the products. Royalties are usually a percentage of the price at which the product is sold and are payable once a sale is made.

The pricing of the Company's goods is affected by the price it obtains from its vendors (Cost of Goods Sold) and therefore dictates the selling price the Company can charge its customers. Other factors that influence the Company's setting of the selling price is the condition of the current market and the nature of the item itself. 

From a selling, general and administrative aspect, the pricing will impact selling (commission expense) and general and administrative (advertising expense). In addition, if a lower selling price is set then the related margin on the product will be reduced and therefore the Company will look to rationalize other expenses, i.e. customer packages.

Accounts receivable are receivables net of an allowance for doubtful accounts. The allowance is adjusted periodically to reflect the current status of receivables. Management believes that current reserves for doubtful accounts are adequate. Sales of products to retailers and distributors are on an irrevocable basis. Consistent with industry practices, Grand Canada may make exceptions to this policy on a case-by-case negotiated basis. Inventory is comprised of finished goods at landed cost.

On a quarterly basis management reviews its inventory of products and makes an assessment of its realizable value. The factors considered include current market prices, the demand for and the seasonality of its products. If circumstances change (i.e. unexpected shift in market demand, pricing, trends etc.) there could be a material impact on the net realizable value of inventory.

The following table sets forth consolidated operations data as a percentage of net sales for the periods indicated:

Net earnings for the third quarter of 2003 were $333,703, or $0.12 per share, as compared to net earnings of $106,266, or $0.04 per share, for the third quarter of 2002.

Net earnings increased by $227,437 as a result of higher gross profit and the recognition of a gain on discontinued operations. Without this gain, the Company would have net earnings of $124,731 or $0.04 per share.

Net sales decreased for the third quarter of 2003 by $99,398, or by 3.06%, to $3,144,655 from $3,244,053 for the third quarter of 2002. In the third quarter of 2002, the Spider-Man Movie product line was introduced to the trade and was very successful. During the third quarter of 2003, this product line levelled off, and therefore the related sales are less in 2003, thereby explaining the decrease.

The net sales of new product lines, such as Art -Xpress, Astro Jax and Hulk helped to offset the decrease in net sales. In addition, there was an increase in sales of the Lord of the Rings product line in the current quarter as compared to the third quarter of 2002.

Gross profit for the Company increased during the third quarter of 2003 by $80,675 compared to the prior quarter. As a percentage of sales, gross profit increased by 3.77% from 38.10% in the third quarter of 2002 to 41.87% in the third quarter of 2003.

Gross profit percentage increased in the third quarter of 2003 primarily due to the addition of higher margin product lines. The Company's continued emphasis on higher margin sales and minimized sales of discontinued products by tighter inventory control further contributed to this increase in gross margins.

The increase of 63.16% in general and administrative expenses of $433,344 from $686,084 in the third quarter of 2002 to $1,119,428, in the third quarter of 2003 was due to increases in legal, advertising, insurance and consulting expenses.

Legal expenses increased by a net amount of $343,594 in this quarter. Legal expenses of $410,832 were incurred as a result of the Company's proposed merger and acquisition, offset by a reduction in general legal expenses of $67,238.

Consulting expenses increased by $137,439 as a result of the incurrence of $103,061 of professional fees related to the merger and acquisition. Refer to overview in Management's Discussion and Analysis.

Advertising expense increased by $96,973, in the quarter as a result of the Company incurring media expenditures to promote it's new product lines.

Insurance expense increased by $26,826 as a result of increased premiums in the Company's insurance coverage.

Expense reductions of $74,515 were realized in overhead expenses as a result of the 2002 restructuring plan resulting in the closing of two of the Company's locations in 2002.

Without the incurrence of $513,893 in expenses related to the merger and acquisition, the Company would have reported an overall decrease of $80,549 in this expense group.

Salaries and fringe benefits expenses were reduced by $382,516 or 101.33%, from $377,490 for September 30, 2002 to a recovery of $5,026 for the current period.

The decrease in salaries and fringe benefits expenses was a result of the reduction in head count due to the restructuring plan implemented in 2002 that closed two of the Company's locations. The impact on the total reduction was $73,516.

In the third quarter of 2003, the Company received a reimbursement of payroll taxes paid in a prior year of $309,000. Without this reimbursement, the Company would have incurred $303,974 in salaries and fringe benefits expense, representing a reduction of 19.4% as compared to the third quarter of 2002.

As a result of the strengthening of the Canadian dollar in the third quarter of 2003, the Company reported a reduced loss of $7,986 as compared to a loss of $11,896 in the third quarter of 2002.

On June 14, 2002, the Company sold all of the shares of its Sababa Toys, Inc. subsidiary. Sababa Toys, Inc. distributes proprietary products and develops product concepts to be sold to third parties. In consideration for the purchase of the shares, the Company received a note in the principal amount of $1,065,716. Payments under the note are to be made quarterly until June 30, 2005 when the unpaid principal balance is due.

As of June 14, 2002 the Company recognized a gain on the sale of $761,584, "of which $612,006 was deferred". As of December 31, 2002, $263,784 was recorded in the Statement of Operations as a gain on sale of discontinued operations. For the third quarter of 2003, the Company recorded a gain of $208,972. The balance of the gain of $56,101 has been deferred and will be recorded in income on a proportionate basis as the proceeds from the note receivable are received.

Net earnings for the first nine months of 2003 were $975,275 or $0.35 per share, as compared to a net loss of $440,462, or ($0.24) per share, for the same period last year.

Net earnings increased by $1,415,737 as a result of increases in gross margins, and the recognition of a gain on discontinued operations. Without this gain, the Company would have had net earnings of $533,576 or $0.19 per share.

Net sales decreased for the first nine months of 2003 by $183,200, or by 2.05%, to $8,743,408 from $8,926,608 for the same period last year. In the first nine months of 2002, the Spider-Man Movie product line was introduced to the trade and was very successful. During the first nine months of 2003, this product line levelled off, and therefore the related sales are less in 2003, thereby explaining the decrease.

The net sales of new product lines, such as Art-Xpress, Astro Jax and Hulk helped to offset the decrease in net sales. In addition, there was an increase in the Lord of the Rings product line in the first nine months of 2003 as compared to the same period in 2002.

Gross profit for the Company increased during the first nine months of 2003 by $504,721 compared to the same period last year. As a percentage of sales, gross profit increased by 6.55% from 37.24% in the first nine months of 2002 to 43.79% in the first nine months of 2003.

Gross profit increased in the first nine months of 2003 primarily due to the addition of higher margin product lines. The Company's continued emphasis on higher margin sales and minimized sales of discontinued products by tighter inventory control further contributed to this increase in gross margins.

The increase of 9.12% in general and administrative expenses of $202,996, from $2,226,736 in the first nine months of 2002 to $2,429,732 in the first nine months of 2003, was due to an overall increase in legal, advertising, insurance, advertising and consulting expenses.

Legal expenses increased by a net amount of $323,919 in this period. Legal expenses of $496,903 were incurred as a result of the Company's proposed merger and acquisition, offset by a reduction in general legal expenses of $172,984.

Advertising expense increased by $135,447, in this period as a result of the Company incurring media expenditures to promote it's new product lines.

Insurance expense increased by $61,857 as a result of increased premiums in the Company's insurance coverage.

Expense reductions of $415, 372 were realized in overhead expenses as a result of the 2002 restructuring plan resulting in the closing of two of the Company's locations in 2002.

Without the incurrence of $599,964 in expenses related to the merger and acquisition, the Company would have reported an overall decrease of $396,968 in this expense group.

As a result of the restructuring plan in 2002 and the reimbursement of prior year's payroll taxes of $309,000, salaries and fringe benefits expenses were reduced by 48.83%, from $1,306,624 for the first nine months of 2002 to $668,603 for the current period.

The decrease in salaries and fringe benefits expenses was a result of the reduction in head count due to the closing of two of the Company's locations in 2002. Without the reimbursement of $309,000, the company would have incurred $977,608 in salaries and fringe benefits expense, a reduction of 25.18% as compared to the first nine months of 2002.

As a result of the strengthening of the Canadian dollar in the first nine months of 2003, the Company reported a gain of $82,734 as compared to a loss of $16,500 in the same period last year.

On June 14, 2002, the Company sold all of the shares of its Sababa Toys, Inc. subsidiary. Sababa Toys, Inc. distributes proprietary products and develops product concepts to be sold to third parties. In consideration for the purchase of the shares, the Company received a note in the principal amount of $1,065,716. Payments under the note are to be made quarterly until June 30, 2005 when the unpaid principal balance is due.

As of June 14, 2002 the Company recognized a gain on the sale of $761,584, "of which $612,006 was deferred". As of December 31, 2002, $263,784 was recorded in the Statement of Operations as a gain on sale of discontinued operations. For the first nine months of 2003, the Company recorded a gain of $441,699. The balance of the gain has been deferred and will be recorded in income on a proportionate basis as the proceeds from the note receivable are received.

The Company generally finances its operations through borrowings under its line of credit facility with Montcap Financial Inc., and by cash flow from operations. In the past, it has also supplemented those sources through the sales of equity securities.

In May 2002, the Company increased the maximum availability under its lines of credit to $2,593,000 from $1,569,563.

Accounts receivable at September 30, 2003 were $1,868,418 compared to $1,866,110 at December 31, 2002. The sales were mainly to mass retailers. Inventory at September 30, 2003 increased to $1,858,859 from $1,148,220 at December 31, 2002, which is expected given the seasonality of the toy industry.

Working capital increased from $1,577,633 at December 31, 2002 to $3,024,372 at September 30, 2003. Net cash provided by operating activities was $858,359 in 2003 compared to net cash used for operating activities of $1,047,135 in 2002. Cash used for additions to equipment and leasehold improvements was $3,732 in 2003 compared to $18,253 for 2002.

The Company's accounts receivable level is subject to significant variations due to the seasonality of sales. As a result, the Company's working capital requirements are greatest during its third and fourth quarters. In addition, to the extent accounts receivable, inventories and advance payments increase as a result of growth of the Company's business, the Company could require additional working capital to fund its operations.

If the funds available to the Company for current cash and cash equivalents are not sufficient to meet the Company's cash needs, the Company may from time to time seek to raise capital from additional sources, including project-specific financing, additional public or private debt or equity financing.

Based on 2003 forecasts, the current credit facility appears to be sufficient to meet the Company's financial needs.

The Company believes that in order to achieve its long-term expansion objectives and to enhance its competitive position in the U.S. market, it will need additional financial resources over the next several years. The precise amount and timing of the Company's future financing needs cannot be determined at this time and will depend upon a number of factors, including the demand for its products and the management of its working capital. The Company may not be able to obtain additional financing on acceptable terms or at all. If the Company is unable to obtain sufficient capital, it could be required to curtail our expansion.

In our audited financial statements for the year ended December 31, 2002, we recognized that we had certain issues which raised substantial doubt about our ability to continue as a going concern. The reasons cited were our recurring losses and the insufficiency of our line of credit to fund our operations. This was noted in KPMG's audit report on those financial statements. Since mid 2002, we have implemented a plan to stem our losses and return to profitability and have secured an increase in our line of credit. Based on 2003 forecasts, the current line of credit appears sufficient to meet our working capital needs. Since the first quarter ended March 31, 2003, the Company did not include a going concern note as a result of the Company reporting earnings for the quarter coupled with the belief that the current credit facility would be sufficient to meet corporate needs.

We incurred net losses of $826,848 for the year ended December 31, 2002, $1,371,492 for the year ended December 31, 2001, and $10,156,713 for the year ended December 31, 2000. We have not reported an annual profit since the year ended December 31, 1997. We have recently begun to implement a plan to return to profitability. Over the course of 2002 and 2001 we focused on products with higher profit margins and reduced expenses. This has resulted in improved performance and, even though we reported net earnings of $453,082, $188,491 and $333,703 for the quarters ended March 31, 2003, June 30, 2003 and September 30, 2003, consecutively, we cannot guarantee profitability for the year ending December 31, 2003. Moreover, we cannot be sure that our efforts will result in our return to profitability on an annual basis in the future.

During 2001, we secured a new line of credit to finance our inventory and accounts receivable and we also realized net proceeds from the sale of our common stock and warrants. During 2002, our total line of credit was increased. These sources of financing, however, are not sufficient to fully implement our business plan. To the extent that we will be required to fund operating losses, our financial position will deteriorate. There can be no assurance that we will be able to find significant additional financing at all or on terms favorable to us. If equity securities are issued in connection with a financing, dilution to our stockholders will likely result, and if additional funds are raised through the incurrence of debt, we may be subject to restrictions on our operations and finances. Furthermore, if we do incur additional debt, we may be limiting our ability to repurchase capital stock, engage in mergers, consolidations, acquisitions and asset sales, or alter our lines of business or accounting methods, even though these actions would otherwise benefit our business.

We believe that in order to achieve our long-term expansion objectives and to enhance our competitive position in the U.S. market, we will need additional financial resources over the next several years. The precise amount and timing of our future financing needs cannot be determined at this time and will depend upon a number of factors, including the demand for our products and the management of our working capital. We may not be able to obtain additional financing on acceptable terms, or at all. If we are unable to obtain sufficient capital, we could be required to curtail our expansion plans.

During 2001, we were advised by Nasdaq that it intended to delist our shares from trading on the Nasdaq SmallCap Stock Market because we failed to meet the standards for continued listing on the Nasdaq Small Cap. Among the reasons cited were the fact our stock price was below the minimum standard of $1.00 per share, our net tangible assets were below the minimum standard of $2,000,000 and the market value of our public float was also below the minimum required standard. We appealed and were successful in implementing a plan to regain compliance with the standards for continued listing. On November 26, 2002, the Nasdaq panel advised us that the temporary exception under which our shares had continued to be listed had become permanent since we had complied with the Nasdaq requirements for continued listing. There can be no assurance that we will be able to meet the requirements for continued listing or that we could successfully appeal another delisting determination. If our shares were delisted, we might be able to have our shares listed for quotation on the OTC Bulletin Board. However, the failure to have our shares quoted on the Nasdaq SmallCap market would likely have an adverse impact on the price and liquidity of our shares and our ability to obtain financing in the future.

As of February 28, 2003, our directors and executive officers beneficially owned, in the aggregate, 1,942,999 shares of our common stock, representing approximately 59% of the common stock outstanding. Accordingly, if these persons act together, they exercise absolute control over matters requiring approval of our stockholders, including the election of our board of directors.

Our success is dependent on the expertise, experience and continued services of our senior management employees. Most decisions concerning our business are made or significantly influenced by them. We do not maintain "key man" insurance on the life of any of these persons. In the event of the loss of any of our senior management employees, no assurances can be given that we will be able to obtain the services of an adequate replacement.

We are authorized to issue 12,500,000 shares of common stock, of which 2,835,244 shares are outstanding. In addition:

1. 216,935 shares are issuable upon the exercise of currently outstanding options granted under our Amended and Restated 1993 Stock Option Plan the sale of which have been registered on either a registration statement on Form S-8 or on this prospectus;
2. 196,000 shares are issuable upon the exercise of options granted outside our 1993 Stock Option Plan; and
3. 3,157,143 shares are issuable upon the exercise of currently outstanding warrants.

If and when we issue these shares, the percentage of common stock owned by each stockholder would be diluted. Moreover, the prevailing market price for the common stock may be materially and adversely affected by the addition of a substantial number of shares, including the shares offered by this prospectus, into the market.

Our four largest customers accounted for approximately 65% of our net sales in 2002. As of September 30, 2003, these customers accounted for approximately 51% of our net sales. Except for outstanding purchase orders for specific products, we do not have written contracts with or commitments from any of our customers. A substantial reduction in or termination of orders from any of our largest customers could adversely affect our business, financial condition and results of operations. In addition, pressure by large customers seeking a reduction in prices, financial incentives, a change in other terms of sale or on us to bear the risks and the cost of carrying inventory could also adversely affect our business, financial condition and results of operations.

We derive a substantial portion of our net sales from a limited number of product lines. Sales of our Toy Biz product line represented approximately 67% of our net sales in 2002. As of September 30, 2003, the Toy Biz product line represented approximately 61% of net sales for the first nine months. As of December 31, 2001, our written distribution agreement with Toy Biz expired. However, we have continued to distribute the product lines carried by Toy Biz during 2002 and 2003. We cannot assure you that we will be able to retain the right to distribute this product line or, even if we are, that any of the products in this branded product line will retain their current popularity. The loss of our distribution rights for any of these product lines or the decrease in the popularity of any one of these branded product lines would adversely affect our business, financial condition and results of operations.

We may, at times, become involved in discussions about acquiring other companies. Our experience in the past has been that this process takes a significant amount of management time and effort. New acquisition discussions will likely distract our management from our day-to-day operations. Even if we do find companies that are worth acquiring, it may be extremely difficult to integrate their operations into our existing operations. In addition, there is no guaranty that our acquisitions will be financially successful. Thus, any such acquisition could have an adverse effect on our liquidity and earnings.

As a result of changing consumer preferences, many toy products are successfully marketed for only one or two years. There can be no assurances that

1. any of our current products or product lines will continue to be popular for any significant period of time;
2. any new products or product lines introduced by us will achieve an adequate degree of market acceptance; or
3. any new product's life cycle will be sufficient to permit us to recover development, manufacturing, marketing or other costs of the product.

In the event a new product does not receive sufficient market acceptance, we may be required to sell inventory of such products at a substantial discount. Accordingly, our success is dependent in large part on our ability to secure the rights to distribute new products and to secure new character and well-known brand name licenses for existing or new product lines, which cannot be assured. Therefore, we cannot assume that any new products will be successful or meet with the same success as existing products.

Our business and operating results depend largely upon the appeal of our toy products. A decline in the popularity of our existing products and product lines or the failure of new products and product lines to achieve and sustain market acceptance could result in reduced overall revenues and margins, which could have a material adverse effect on our business, financial condition and results of operations. Our continued success will depend on our ability to redesign, restyle and extend our existing toy products and fashion accessories and to develop, introduce and gain customer acceptance of new products. However consumer preferences with respect to toy products and fashion accessories are continuously changing and are difficult to predict.

Although it is our policy that all transactions with and loans to our affiliates be made on similar terms to those that can be obtained from unaffiliated third parties and for such transactions to be approved by a majority of our directors who do not have an interest in the transaction, certain situations may arise in the future where an interested party would be required to vote on actions that could benefit such person and negatively impact Grand, or vice versa.

Most of our business is currently conducted in Canada. We are subject to the provisions of various laws, certain of which have been enacted by the federal government of Canada, the Province of Quebec and other Canadian provinces. The laws of Canada include the Hazardous Products Act which empowers the government to protect children from hazardous toys and other articles. Under that legislation, the government has the authority to exclude from the market those products which are found to be hazardous. We are also subject to the Consumer Packaging and Labeling Act enacted by the government of Canada, which legislation prohibits the importation of prepackaged items and the sale or importation or advertising of items which have misleading information on their labels. As a result, if any of these Canadian governmental entities should allege that any of our products are hazardous to children or the packaging is misleading, whether or not such items are dangerous or misleading, we could be precluded from selling entire lines of toys until a full investigation is completed. In such case, even if we were to prevail, a significant portion of the value of the entire line could be lost during a time-consuming investigation because, as discussed above, the life cycle for toy products is usually very short.

Many other companies involved in the toy distribution industry in Canada and the United States have greater financial resources, larger sales forces, greater name recognition, larger facilities for product development and products that may be more competitively priced than our products. As a result, some of our competitors may be able to obtain a greater volume of and more lucrative distribution contracts than we can.

Our business is seasonal and therefore our annual operating results will depend, in large part, on our sales during the relatively brief holiday season from September through December when the majority of our sales take place. Further, the impact of seasonality is increasing as large retailers become more efficient in their control of inventory levels through quick response management techniques. These customers are timing reorders so that they are being filled by suppliers closer to the time of purchase by consumers, which to a large extent occur during September through December, rather than maintaining large on-hand inventories throughout the year to meet consumer demand. While these techniques reduce a retailer's investment in inventory, they increase pressure on suppliers like us to fill orders promptly and shift a significant portion of inventory risk and carrying costs to the supplier. The limited inventory carried by retailers may also reduce or delay retail sales. Additionally, the logistics of supplying more and more product within shorter time periods will increase the risk that we may fail to achieve tight and compressed shipping schedules. This seasonal pattern requires significant use of working capital mainly to manufacture inventory during the year, prior to the holiday season, and requires accurate forecasting of demand for products during the holiday season. Our failure to accurately predict and respond to consumer demand could result in our underproducing popular items and overproducing less popular items.

Market prices of the securities of toy companies are often volatile and our historical stock price has reflected this volatility. The market price of our common stock may be affected by many factors, including: fluctuations in our financial results; the actions of our customers and competitors (including new product line announcements and introductions); new regulations affecting foreign manufacturing; other factors affecting the toy industry in general; and sales of our common stock into the public market. In addition, the stock market periodically has experienced significant price and volume fluctuations which may have been unrelated to the operating performance of particular companies.

We are authorized to issue 5,000,000 shares of "blank check" preferred stock, which is preferred stock that may be issued from time to time in such classes or series and with such terms, rights and preferences as the board of directors may choose. All of these shares may be issued at the discretion of our board of directors, without the approval of our stockholders, with dividend, liquidation, conversion, voting or other rights, which could negatively affect the voting power or other rights of owners of our common stock or other series of preferred stock.

Our preferred stock can be designated in a manner that could delay or impede a merger, tender offer or other transactions resulting in a change in control, even if such a transaction would have significant benefits to our stockholders. As a result, these provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock.

We have not paid any cash or other dividends on our common stock and do not expect to declare or pay any cash dividends in the foreseeable future. In addition, our current credit agreement with our bank restricts the payment of any dividends without the bank's prior consent.

The Company has determined that the new pronouncements effective in the year 2003 will not have a significant impact on the consolidated financial statements.

The Company is exposed to certain market risks, which arise from transactions entered into the normal course of business. The Company's primary exposures are changes in interest rates with respect to its debt and foreign currency exchange fluctuations.

INTEREST RATE RISK The interest payable on the Company's revolving lines-of-credit are variable based on the prime rate, and therefore, affected by changes in market interest rates. The Company does not use derivative financial instruments.

FOREIGN CURRENCY RISK While the Company's product purchases are transacted in United States dollars; most transactions among the suppliers and subcontractors are effected in Hong Kong dollars, where most of the Companies' products are manufactured. Accordingly, fluctuations in Hong Kong monetary rates may have an impact on the Company's cost of goods. Furthermore, appreciation of Chinese currency values relative to the Hong Kong dollar could increase the cost to the Company of the products manufactured in the People's Republic of China, and thereby have a negative impact on the Company. As well since the majority of the Company's sales are in Canadian dollars, the Company is at risk with regards to the conversion of Canadian dollars to US dollars to pay its suppliers. Therefore, fluctuations in conversion rates may have an impact on the Company. The Company may use derivative financial instruments solely to hedge the effects of such currency fluctuations.

As of September 30, 2003 (the end of the period covered by this report), the Company's management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings.

In designing and evaluating the Company's disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended), management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We believe that our disclosure controls and procedures provide such reasonable assurance.

Subsequent to the date of that evaluation, there have been no significant changes in the Company's internal control or in other factors that could significantly affect these controls, nor were any corrective actions required with regard to significant deficiencies and material weaknesses.

During the quarter ended September 30, 2003, there were no other material developments to any legal proceedings, which have been previously reported by the Company.

Other than discussed above or in Note 13 to the Company's December 31, 2002 Consolidated Financial Statements, the Company is not a party to, nor is it aware of, any other pending litigation of a material nature.

None

None

None

None

Pursuant to the requirements of the Security Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: November 14, 2003

Pursuant to the requirements of the Security Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: November 14, 2003

I, Stephen Altro, Interim - President and Chief Executive Officer (principal executive officer) of Grand Toys International, Inc. (the "Registrant"), certifies that:

1. I have reviewed this quarterly report on Form 10-Q of Grand Toys International , Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:

Stephen Altro

Date: November 14, 2003

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Tania M. Clarke, Chief Financial Officer (principal financial officer) of Grand Toys International, Inc. (the "Registrant"), certifies that:

1. I have reviewed this quarterly report on Form 10-Q of Grand Toys International , Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter [the registrant's fourth fiscal quarter in the case of an annual report], that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:

Tania M. Clarke

Date: November 14, 2003

(Section 906 of the Sarbanes-Oxley Act of 2002)

I, Stephen Altro, Interim - President and Chief Executive Officer (principal executive officer) of Grand Toys International, Inc. (the "Registrant"), certifies that to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended September 30, 2003 of the Registrant (the "Report"):

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

(Section 906 of the Sarbanes-Oxley Act of 2002)

I, Tania M. Clarke, Chief Financial Officer (principal financial officer) of Grand Toys International, Inc. (the "Registrant"), certifies that to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended September 30, 2003 of the Registrant (the "Report"):

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.