<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ______________________ to ____________________
Commission file number 000-29334
KIDS STUFF, INC.
(Exact name of registrant as specified in its charter)
Delaware 34-1843520
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4450 Belden Village Street, N.W., Suite 406, Canton, Ohio 44718
(Address of principle executive offices) (Zip Code)
(330) 492-8090
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 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 [ ]
As of November 11, 1998, there were 3,512,856 shares of the Registrant's Common
Stock $.001 par value issued and outstanding.
Transitional Small Business Disclosure Format.
Yes [ ] No [ X ]
<PAGE>
INDEX
Balance Sheets - September 30, 1998 (Unaudited) and December 31, 1997. 3
Statements of Operations - Three Months and Nine Months Ended
September 30, 1998 and 1997 (Unaudited). 5
Statements of Cash Flows - Nine Months Ended
September 30, 1998 and 1997 (Unaudited). 6
Notes to Financial Statements. 7
Item 2 - Management's Discussion and Analysis or Plan of Operations. 14
Signature Page 16
2
<PAGE>
Kids Stuff, Inc.
Balance Sheets
<TABLE>
<CAPTION>
(UNAUDITED)
September 30, December 31,
1998 1997
------------- ------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash 329,157 $ 101,894
Accounts receivable 392,570 335,013
Inventories 1,585,009 1,389,012
Deferred catalog expense 542,103 259,592
Due from affiliates 18,252 580,965
Prepaid expenses 53,539 21,798
---------- ----------
Total current assets 2,920,630 2,688,274
PROPERTY & EQUIPMENT:
Data processing equipment 231,317 207,378
Leasehold Improvements 20,013 19,909
Vehicles 9,089 9,089
Machinery and equipment 101,755 93,366
Furniture and fixtures 147,018 129,314
---------- ----------
509,192 459,056
Less accumulated depreciation 228,698 193,634
---------- ----------
280,493 265,422
OTHER ASSETS, net of accumulated amortization
Goodwill 1,078,091 1,119,425
Customer List 420,833 474,940
Catalog Artwork 124,535 --
---------- ----------
1,623,459 1,594,365
$4,824,582 $4,548,061
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Kids Stuff, Inc.
Balance Sheets
<TABLE>
<CAPTION>
(UNAUDITED)
September 30, December 31,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Current portion long-term debt - related parties $ 0 $ 100,000
Accounts payable 2,115,465 1,617,204
Line of credit 732,000 671,000
Customer advances and other 13,499 137,193
----------- -----------
Total current liabilities 2,860,964 2,525,397
LONG-TERM DEBT-RELATED PARTIES, NET OF CURRENT 0 200,000
STOCKHOLDERS' EQUITY:
Preferred stock 5,000 5,000
Common stock 3,513 3,513
Additional paid - in capital 3,216,734 3,216,734
Retained earnings (deficit) (1,261,630) (1,402,583)
----------- -----------
Total Stockholders' Equity 1,963,617 1,822,664
$ 4,824,582 $ 4,548,061
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Kids Stuff, Inc.
Statements of Operations
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
Three Months Ended 9/30 Nine Months Ended 9/30
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 3,220,741 $ 3,096,797 $ 9,834,362 $ 6,606,678
Cost of Sales 1,857,552 1,832,964 5,806,678 3,851,136
----------- ----------- ----------- -----------
Gross Profit 1,363,169 1,263,833 4,027,684 2,755,542
Selling Expenses 967,541 862,188 2,728,343 2,066,353
General and Administrative
Expenses 394,271 304,434 1,151,856 686,954
----------- ----------- ----------- -----------
Income (Loss) From Operations 1,377 97,211 147,485 2,235
Other (Expense) Income - net 18,020 (66,693) (6,531) (97,496)
----------- ----------- ----------- -----------
Net Income (Loss) $ 19,397 $ 30,518 $ 140,954 $ (95,261)
=========== =========== =========== ===========
Basic and Diluted Income (Loss) Per Share $ 0.01 $ 0.01 $ 0.04 $ (0.03)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Kids Stuff, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
(UNAUDITED)
Nine Months Ended September 30,
1998 1997
Cash Flows From Operating Activities:
<S> <C> <C>
Net income (loss) $ 140,954 $ (95,261)
Adjustments to reconcile net income (loss)
cash (used) provided by operating activities:
Depreciation and amortization 132,505 34,883
(Increase) in accounts receivable (57,557) (172,089)
Decrease (increase) in inventories (195,997) (221,495)
(Increase) decrease in deferred catalog (282,511) 21,099
(Increase) in prepaid expenses (31,741) 52,311
(Decrease) increase in accounts payable, customer 374,567 71,309
----------- -----------
Net cash (used) provided by operating activities 80,221 (309,243)
Cash Flows From Investing Activities:
Investment in property and equipment (50,135) (110,281)
Purchase of Natural Baby Catalog Business -- (1,494,965)
Investment in Catalog Artwork (126,535) --
----------- -----------
Net cash (used) by investing activities (176,670) (1,605,246)
Cash Flows From Financing Activities:
Borrowings on line of credit - net 61,000 --
Sale of Common Stock -- 2,513,070
Sale of Preferred Stock -- 5,000
Payment on long-term debt-related parties (300,000) (266,858)
Purchase of Common Stock -- (107,143)
(Decrease) in due to affiliates -- (137,070)
Decrease (increase) in due from 562,713 (264,150)
----------- -----------
Net cash provided (used) by financing activities 323,713 1,752,849
Net increase (decrease) in cash 227,263 (161,640)
Cash - Beginning 101,894 248,648
----------- -----------
Cash - Ending $ 329,157 $ 87,009
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash Paid during the period for interest $ 11,214 $ 108,778
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 Organization and Business
A. Business Description - Kids Stuff, Inc. ("Kids Stuff" of
the "Company") is in the mail order business and sells to customers
throughout the United States. Perfectly Safe, a division of the
Company, primarily sells children's safety products for use up to age
3. Jeanne's Kids Club, a division of the Company, sells hard good
products for children primarily up to the age of 3. Natural Baby, a
division of the Company, sells clothing and toys for children primarily
up to the age of 3. Products are purchased from a variety of vendors.
B. Reorganization - Kids Stuff was incorporated during 1996 as
a wholly owned subsidiary of Duncan Hill, Inc. ("Duncan Hill"). Prior
to a reorganization occurring June 30, 1996, Kids Stuff had no
operations. The operations shown in the accompanying financial
statements prior to June 30, 1996 are those of Perfectly Safe, Inc.,
which was dissolved as part of the reorganization and is sometimes
referred to as "Predecessor" in these financial statements.
Perfectly Safe, Inc. was also a wholly owned subsidiary of
Duncan Hill. Effective June 30, 1996, the assets and liabilities of
Perfectly Safe, Inc., reverted to Duncan Hill, and Perfectly Safe, Inc.
was dissolved. As part of the reorganization, the Company acquired the
assets and liabilities of its Predecessor. The Company also acquired,
as part of the reorganization, certain fixed assets formerly belonging
to Duncan Hill at a net book value of $122,143 at December 31, 1995.
The combination of the Company's acquisition of the assets of its
Predecessor and the Company's acquisition of certain assets of Duncan
Hill were accounted for at historical cost as a reorganization of
companies under common control. The operations of the Predecessor are
currently operated as the Perfectly Safe Division and Jeanne's Kids
Club Division of the Company.
Note 2 Basis of Presentation
The accompanying financial statements have been prepared by
the Company. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. In the
opinion of the Company's management, the disclosures made are adequate
to make the information presented not misleading, and the financial
statements contain all adjustments necessary to present fairly the
financial position as of September 30, 1998, results of operations for
the three months and nine months ended September 30, 1998 and 1997, and
cash flows for the nine months ended September 30, 1998 and 1997.
7
<PAGE>
The results of operations for the three months and nine months
ended September 30, 1998 are not necessarily indicative of the results
to be expected for the full year.
Per Share Amounts - Net income per share is calculated using the
weighted average number of shares outstanding during the
period. Since the effect of adding outstanding warrants would
be anti-dilutive, they are not considered in the calculation
for the periods presented. The number of shares outstanding in
computing basic and diluted earnings per share for the three
and nine months ended September 30, 1998 is 3,512,856. For the
three and nine months ended September 30, 1997, the number of
shares outstanding in computing basic and diluted earnings per
share was 3,289,523 and 3,563,174.
In June 1998, the Financial Accounting Standards Board issued
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement established accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts,
and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities on the balance
sheet and measurement of those instruments at fair value. If
certain conditions are met, a derivative may be designated
specifically as (a) a hedge of the exposure to changes in fair
value of a recognized asset or liability or an unrecognized
firm commitment (fair hedge), (b) a hedge of the exposure to
variable cash flows of a forecasted transaction (a cash
hedge), or (c) a hedge of the foreign currency exposure of a
net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The
Company does not anticipate having each of these types of
hedges, but will comply with requirements of SFAS 133 when
adopted. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company
will adopt SFAS 133 beginning January 1, 2000. The effect of
adopting SFAS 133 is not expected to be material.
Note 4 Contract With The Havana Group, Inc.
Effective January 1, 1998, the Company contracted with The Havana
Group, Inc. ("Havana"), a related company, at an annual fee of
approximately $206,100 for the administrative, executive and
accounting services, as outlined below, and $2.40 per order
processed by the Company for Havana.
Accounting and Payroll Services $ 34,000
Administration and Human Resource Management 51,600
Data Processing 34,900
Office Equipment and Facilities Use 32,200
Merchandising and Marketing Services 38,100
Purchasing Services 15,300
---------
Total $ 206,100
=========
8
<PAGE>
Note 5. Stockholders' Equity
A. Common Stock
In connection with the reorganization effective June 30, 1996,
the Company issued to its parent, Duncan Hill, 2,400,000 shares of
Common Stock at a value of $.125 per share. Commencing October 1996,
the Company sold an aggregate of 1,300,000 shares of Common Stock to
eight private investors for the aggregate purchase price of $162,500.
These 3,700,000 shares of unregistered securities were issued by the
Company at its inception. There were no underwriting discounts and
commissions paid in connection with the issuance of any said
securities.
In June 1997, the Company repurchased 857,144 of the shares
sold to five of the eight private investors at a repurchase price of
$.125 per share. The Company's repurchase payment was in the form of
promissory notes totaling $107,143. These notes were paid off in July
1997 with the proceeds of the public offering.
In July 1997, the Company completed an initial public offering
(see Note 9) in which 600,000 common shares were issued.
In July 1997, the Company issued 70,000 unregistered
restricted shares which represented $245,000 of the $2,066,829 purchase
cost of The Natural Baby Catalog (see Note 8).
B. Preferred Stock
The Board of Directors has the authority, without further action
by the stockholders, to issue up to 10,000,000 shares of
Preferred Stock in one or more series and to fix the rights,
preferences, privileges, and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, and the number of shares
constituting any series or the designation of such series.
During January 1997, the Company issued 5,000,000 shares of Series A
Preferred Stock, $.001 par value to Duncan Hill as part of the
reorganization (See Note A). The holders of the Series A
Preferred Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the
stockholders.
The Series A Preferred Stock is not subject to redemption and has
no conversion rights or rights to participate in dividend
payments. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Company, each share of Series A Preferred Stock has a
liquidation preference of $.001 per share.
9
<PAGE>
C. Warrants
In conjunction with the public offering discussed in Note 7,
the Company issued 2,400,000 Class A warrants. Each warrant entitles
the holder to purchase one share of common stock at a price of $5.00
for a period of four years commencing one year after June 26, 1997, the
date of the Company's prospectus. The Company may redeem the Warrants
at a price of $.05 per Warrant, at any time after they become
exercisable, upon not less than 30 days' prior written notice, if the
closing bid price of the Common Stock has been at least $14.40 per
share for 20 consecutive trading days ending on the fifth day prior to
the date on which the notice of redemption is given.
Note 6. Note Payable - Line of Credit
The Company has an $800,000 line of credit from United Bank with
an open term which is payable on demand, bearing interest
payable monthly at the bank's prime lending rate plus 1%, for
an effective rate of 9.5% at September 30, 1998, and had a
balance of $732,000 at September 30, 1998. The line is secured
by assets of the Company, as well as the assets of Duncan Hill
and Havana. The repayment of the facility is guaranteed by Mr.
Miller, the Company's Chief Executive Officer, and Havana. The
credit facility is currently being rewritten by the bank. A
condition of renewal is that the Company maintain a zero
balance on the credit line for a period of thirty consecutive
days during the course of each year. The bank has agreed to
waive this requirement until a new loan package has been
negotiated.
Note 7. Long-Term Debt - Related Parties
A. Long-term debt to related parties consists
of the following:
<TABLE>
<CAPTION>
(unaudited)
September December 31,
30,
1998 1997
---- ----
<S> <C> <C>
Note Payable - Duncan Hill Company (parent company),
unsecured and payable in four annual principal
payments plus interest at 8.0%, matures June 2000.
The initial installment was for $66,858 and the three
remaining installments are for $100,000. $ -- $300,000
Less current portion -- 100,000
$ -- $200,000
======== ========
</TABLE>
Duncan Hill has retired this note as payment against an inter-company
debt owed to the Company by Duncan Hill.
10
<PAGE>
Note 8. Acquisition of The Natural Baby Catalog
In July 1997, the Company acquired the net assets and operations
of The Natural Baby Catalog, a mail order retailer of
children's clothing and toys. The purchase was funded with the
net proceeds of an initial public offering. The acquisition
has been accounted for as a purchase and, accordingly, the
operating results of the acquired company have been included
in the Company's financial statements since the date of
acquisition. The aggregate purchase price is comprised of the
following:
<TABLE>
<CAPTION>
<S> <C>
Cash paid to former owners and to pay off debt of
The Natural Baby Company $ 1,444,831
Costs of acquisition 276,998
Issuance of 70,000 Kids Stuff unregistered common shares to
the former owners of The Natural Baby
Company 245,000
Note payable 100,000
-----------
Total purchase price $ 2,066,829
===========
</TABLE>
11
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 8. Acquisition of The Natural Baby Catalog (continued)
The purchase price was allocated to the net assets acquired
based on fair values as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 29,297
Inventory 474,769
Deferred catalog costs 185,587
Prepaid expenses 3,544
Property and equipment 24,331
Customer list 505,000
Accounts payable assumed (296,211)
-----------
Net assets acquired 926,317
Excess of the purchase price over fair market value
of assets acquired 1,140,512
-----------
Total purchase price $ 2,066,829
===========
</TABLE>
The excess of the aggregate purchase price over the fair market
value of net assets acquired of $1,140,512 was recorded as
goodwill.
The following unaudited pro forma results of operations for the
years ended December 31, 1997 assume the acquisition occurred
as of January 1, 1997:
1997
-------------------
Sales 13,954,877
Net Income 298,835
Earnings per share .08
12
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 9. Public Offering
In July 1997, the Company completed an initial public offering in
which 300,000 units were sold for $2,619,890, net of issuance
costs of $980,110. Each unit consisted of two common shares
and eight redeemable Class A warrants, and sold for $12 per
unit. The common stock and warrants are separately
transferable.
The proceeds of the public offering were used to acquire net
assets and operations of The Natural Baby Catalog, to pay on
accounts payable, to repay indebtedness to bridge lenders, to
repay indebtedness to the Company's parent, Duncan Hill, to
consolidate the operations of The Natural Baby Catalog, and
for general corporate purposes.
Item 2. Management's Discussion and Analysis or Plan of Operation.
OVERVIEW
Kids Stuff, Inc. is a catalog merchant selling quality children's products to
consumers throughout the United States. Our business emphasizes products for
children in the age group of prenatal to three years old, and consists of three
catalogs:
Perfectly Safe specializes in children's safety products. Jeannie's Kids Club
offers toys and other hardgoods at discount prices in return for an annual
membership fee. The Natural Baby Catalog emphasizes natural clothing, diapering
and wood toys.
We acquired Perfectly Safe during January 1990 and circulated approximately
900,000 catalogs during that first year, producing net sales of $1,473,000. By
the end of 1997, sales had increased to over $3.9 million, which resulted in an
annual compound growth rate of approximately 15%. In the first six months of
1998 net sales were $2,500,771, an increase of 38% over the comparable 1997
period.
Jeannie's Kids Club was created and developed in-house, and the first catalog
was mailed during July 1995. The annual club membership is $18, and is renewed
automatically each year, subject to customer cancellation and other limitations.
In return for their membership fee, members are able to purchase products at
discount prices compared to other children's catalogs. During the year 1997, the
second full year of Kids Club operations, net sales were $3.2 million. However,
during the first six months of 1998 net sales were 13.8% less than the
comparable 1997 period, reflecting the impact of a planned reduction of 52% in
catalog circulation.
We acquired The Natural Baby Catalog on July 2,1997, using the proceeds from our
initial public offering. The Natural Baby Catalog compliments our other catalogs
and offers alternative products to parents interested in natural childbirth,
nursing products and natural fiber clothing. During 1997, The Natural Baby
Catalog generated net sales of $3.8 million in the third and fourth quarters,
and is expected to contribute substantially to our growth in 1998.
13
<PAGE>
RESULTS OF OPERATIONS
Three months ended September 30, 1998 compared to the three months ended
September 30, 1997.
Sales for the quarter ended September 30, 1998 increased 4.0% to $3,220,741
compared with $3,096,797 for the same period of 1997. Net profits for the third
quarter, however, declined to $19,397 compared with net profits of $30,518 for
the same period in 1997.
Approximately 93% of our increased revenues were attributed to The Natural Baby
Catalog. Combined revenues from our Perfectly Safe and Kids Club catalogs
increased 7% compared with 1997, producing the remainder of our overall revenue
increase.
Cost of sales decreased from 59.2% of net sales in 1997 to 57.7% in 1998. The
change is attributable to catalog pricing changes, which resulted in lower cost
of merchandise measured as a percent of sales.
Selling expenses, consisting of advertising and marketing costs, were 25.8% of
net sales in the third quarter of 1998, compared with 27.8% in the third quarter
of 1997. This increase is attributable to slightly higher advertising expenses.
General and Administrative expenses increased by $89,837. As a result of the
Natural Baby acquisition, the growth of our operation has given rise to higher
support costs. Costs of outside legal and accounting services have increased
because of the compliance requirements associated with being a public company.
General and administrative costs are also affected by services we provide to
Havana, an affiliated company.
Since January 1, 1997, we have been providing administrative and other support
services to Havana. During the first quarter 1997, the costs of these services
were allocated based on the percentage of Havana's total assets to that of the
controlled group. Beginning January 1, 1998, a contract was established between
Kids Stuff and Havana. The contract details specific fees to be charged by Kids
Stuff for providing administrative support and order fulfillment services to
Havana. The contract also provides an additional charge of 5% of Havana's pretax
profit for 1998. We believe these fees are substantially the same as the cost of
Havana staffing these functions itself. During this quarter we've charged Havana
$72,800, including order fulfillment costs, as compared to approximately
$110,000 allocated last year.
Net income declined by $11,121 this quarter as compared to the same quarter last
year. Last year's quarter net income amounted to 1.0% of net sales, while net
income for the current quarter amounted to .6% of sales.
Nine months ended September 30, 1998 compared to the Nine months ended September
30, 1997.
Sales for the nine months ended September 30, 1998 increased 48.9% to
$9,834,362, compared with $6,606,678 for the same period of 1997. Net income for
the first nine months of 1998 improved to $140,954 compared with a net loss of
($95,261) for the same period in 1997.
14
<PAGE>
Approximately 85% of our increased revenues were attributed to The Natural Baby
Catalog. Combined revenues from our Perfectly Safe and Kids Club catalogs
increased 15% compared with 1997, producing the remainder of our overall revenue
increase.
Cost of sales increased from 58.2% of net sales in 1997 to 59.0% in 1998. The
change is attributable to the shipping rate increase imposed by United Parcel
Service this year. The Company increased shipping charges to customers the
second quarter of 1998 to offset this increase.
Selling expenses, consisting of advertising and marketing costs, were 27.7% of
net sales in the first nine months of 1998, compared with 31.3% in 1997. This
11.3% reduction in selling expense as a percentage of net sales, reflects the
impact of The Natural Baby Catalog, whose selling expenses are less than those
of our other catalogs because of the higher average order. Additionally, we
improved the productivity of our Perfectly Safe and Kids Club catalog mailings
during the first half of 1998, which resulted in lower selling expenses compared
with the first half of 1997.
General and Administrative expenses increased by $464,902 from 10.4% of net
sales in 1997 to 11.7% in 1998. As a result of the Natural Baby acquisition, the
growth of our operation has given rise to higher support costs. Costs of outside
legal and accounting services have increased because of the compliance
requirements associated with being a public company. General and administrative
costs are also affected by services we provide to Havana, an affiliated company.
During the first nine months of 1998 we've charged Havana $218,500 including
order fulfillment costs, as compared to approximately $205,000 allocated last
year.
Liquidity and Capital Resources
At September 30, 1998, our accumulated deficit was reduced by $140,954 from
December 31, 1997 because of the first nine months earnings performance.
In addition to net earnings, cash provided by operating activities including
non-cash charges of $132,505 for depreciation and amortization. Largest users of
working capital were inventory increases and increased deferred catalog expense,
totaling $478,508. Higher volume mailings of catalogs, as compared to 1997,
accounts for the increased deferred expense and inventory needs.
During 1997, net cash was provided through net profit, depreciation and
amortization, a reduction in deferred catalog expense, and an increase in
accounts payable. These items provided $685,000 in operating cash. Cash provided
was partially offset by increased inventories totaling $418,000. During the same
period in 1997, we purchased the Natural Baby Catalog business for $1,696,000;
this cash was provided by a public offering that netted $2,620,000.
At September 30, 1998, the balance on our credit line was $732,000, having
borrowed no additional cash during the past three months. Our current credit
line is $800,000, payable on demand. The line is secured by the assets of Kids
Stuff, The Havana Group and Duncan Hill, and is guaranteed by our CEO. The
interest rate is 1% over prime.
15
<PAGE>
With respect to financing activities, there was a decrease in both amounts due
from affiliates and note payable to affiliates of $562,713. The decrease in
amounts due from affiliates relates to payments received for past and current
administrative support and fulfillment services we provided to Havana. The note
payable in the amount of $300,000 was due to Duncan Hill, and was satisfied by
amounts payable by Duncan Hill to the Company.
Overall, we expect to meet our cash needs through ongoing operations for the
next 12 to 15 months. The Company is seeking to expand its line of credit
through its current institutional lender; moreover, we are looking to raise
additional funds through a possible public offering. No assurances can be given
these outside sources of additional funding will be successful. These additional
funds would be used to enhance our competitiveness through expanded operations.
Year 2000 Issues
Many existing computer programs use only two digits to identify a year in the
date field. Their programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000. The
company is currently working to correct its computers and does not believe that
the expenditures will materially adversely impact the company, although no
assurances can be given in this regard. The Company purchases its materials from
numerous vendors. While the Company has not determined whether all its vendors
will be year 2000 compliant before the problem arises, Management believes that
since it is not dependent on any major vendor, its operations will not be
materially or adversely effected by the failure of a few vendors to timely
correct the problem. However, no assurances can be given that Management will be
correct in its belief.
Forward Looking Statements and Associated Risks
This Form 10-QSB contains forward looking statements which reflect management's
current views and estimates of future economic circumstances, industry
conditions, company performance and financial results. These forward looking
statements are based largely on our expectations and are subject to a number of
risks and uncertainties, many of which are beyond our control, such as
competition or possible future changes to state sales tax laws. Actual results
could differ materially from these forward looking statements because of changes
in the children's mail order catalog industry, availability or prices of goods,
credit availability, printers' schedules or availability, and other factors. Any
changes in such assumptions or factors could produce significantly different
results.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits filed as part of this report:
27. Financial Data Schedule
No report on form 8-K was filed during the second quarter of 1998.
16
<PAGE>
Signature
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Kids Stuff, Inc.
Date: 11/13/98 \s\ William Miller
-------- ------------------------------
William Miller, CEO and CFO
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND RELATED FOOTNOTES THERETO, OF KIDS STUFF, INC.
</LEGEND>
<S> <C>
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0
5,000
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