<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 March 31, 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 (I.R.S. Employer
incorporation 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 April 22, 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]
1
<PAGE>
INDEX
Balance Sheets - March 31, 1998 (Unaudited) and December 31, 1997. ...... 3
Statements of Operations - Three Months Ended March 31, 1998 and 1997
(Unaudited). ........................................................... 5
Statements of Cash Flows ................................................ 6
Notes to Financial Statements ........................................... 8
Item 2 - Management's Discussion and Analysis or Plan of Operations ..... 15
Part II - Other Information ............................................. 18
2
<PAGE>
Kids Stuff, Inc.
Balance Sheets
<TABLE>
<CAPTION>
(UNAUDITED)
March 31, December 31,
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ................................... $ 79,490 $ 101,894
Accounts receivable .................... 312,487 335,013
Inventories ............................ 1,330,787 1,389,012
Deferred catalog expense ............... 504,704 259,592
Due from affiliates .................... 588,037 580,965
Prepaid expenses ....................... 40,360 21,798
---------- ----------
Total Current Assets ................ 2,855,865 2,688,274
PROPERTY & EQUIPMENT:
Data processing equipment .............. 213,432 207,378
Leasehold Improvements ................. 19,909 19,909
Vehicles ............................... 9,089 9,089
Machinery and equipment ................ 95,787 93,366
Furniture and fixtures ................. 140,511 129,314
---------- ----------
478,730 459,056
Less accumulated depreciation .......... 205,754 193,634
---------- ----------
272,976 265,422
OTHER ASSETS, net of accumulated amortization
Goodwill ............................... 1,102,881 1,119,425
Customer List .......................... 463,746 474,940
---------- ----------
1,566,627 1,594,365
$4,695,467 $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)
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion long-term debt - related parties $ 100,000 $ 100,000
Accounts payable ............................... 1,698,584 1,617,204
Line of credit ................................. 732,000 671,000
Customer advances and other .................... 83,159 137,193
----------- -----------
Total Current Liabilities ................... 2,613,743 2,525,397
LONG-TERM DEBT-RELATED PARTIES,NET OF CURRENT PORTION 200,000 200,000
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) .................... (1,343,523) (1,402,583)
----------- -----------
Total Stockholders' Equity .................. 1,881,724 1,822,664
----------- -----------
$ 4,695,467 $ 4,548,061
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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Kids Stuff, Inc.
Statements of Operations
<TABLE>
<CAPTION>
(UNAUDITED)
Three Months Ended March 31,
--------------------------------
1998 1997
------------ -------------
<S> <C> <C>
Sales ................................... $ 3,204,877 $ 1,465,541
Cost of Sales ........................... 2,001,467 825,394
----------- -----------
Gross Profit ............................ 1,203,410 640,147
Selling Expenses ........................ 769,728 594,841
General and Administrative
Expenses .......................... 366,241 189,443
----------- -----------
Income (Loss) From Operations ........... 67,441 (144,137)
Net Other (Expense) Income .............. (8,381) (14,819)
----------- -----------
Net Income (Loss) ....................... $ 59,060 ($ 158,956)
----------- -----------
----------- -----------
Basic and Diluted Income (Loss) Per Share 0.02 (0.04)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Kids Stuff, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
(UNAUDITED)
Three Months Ended Mar 31,
-----------------------------
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ........................................ $ 59,060 ($158,956)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization ...................... 39,859 8,841
Decrease (increase) in accounts receivable ......... 22,524 (43,808)
Decrease in inventories ............................ 58,226 108,924
(Increase) in deferred catalog expense ............. (245,112) (63,180)
(Increase) in prepaid expenses ..................... (18,562) --
Increase in accounts payable, customer advances
and other ................................... 27,346 242,322
--------- ---------
Net cash (used) provided by operating activities .............. (56,659) 94,143
Cash Flows From Investing Activities:
Investment in property and equipment ..................... (19,673)
(13,497)
Prepaid amounts for acquisition of Natural Baby Catalog
business
-- (19,533)
Purchase of Natural Baby Catalog business -- --
--------- ---------
--------- ---------
Net cash (used) by investing activities ....................... (19,673) (33,030)
Cash Flows From Financing Activities:
Borrowings on line of credit - net ....................... 61,000 --
Sale of common stock ..................................... -- --
Sale of preferred stock .................................. -- 5,000
Borrowings on long-term debt - related parties ........... -- --
Payment on long-term debt - related parties .............. -- --
Payment on note payable for acquisition of Natural Baby
Catalog .................................................. -- --
Purchase of common stock ................................. -- --
Decrease (increase) in prepaid amounts for public offering -- (135,759)
(Decrease) in due to affiliates .......................... -- (137,070)
(Increase) in due from affiliates ........................ (7,072) --
--------- ---------
Net cash provided (used) by financing activities .............. 53,928 (267,829)
Net (Decrease) in Cash ........................................ (22,404) (206,716)
Cash - Beginning .............................................. 101,894 248,648
--------- ---------
Cash - Ending ................................................. $ 79,490 $ 41,932
--------- ---------
--------- ---------
Supplemental Disclosure of Cash Flow Information
Cash Paid during the period for interest $11,214 $13,512
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 Organization and Business
A. Business Description - 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, Inc. ("Kids Stuff" or the "Company")
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 March 31,
1998, results of operations and cash flows for the three months
ended March 31, 1998.
The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for
the full year.
7
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KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 3. New Authoritative Pronouncements
In October 1995, Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation, was issued which
establishes accounting and reporting standards for stock-based
compensation plans. This standard encourages the adoption of the
fair value-based method of accounting for employee stock options or
similar equity instruments, but continues to allow the Company to
measure compensation cost for those equity instruments using the
intrinsic value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Under the fair value-based method, compensation cost is
measured at the grant date based on the value of the award. Under
the intrinsic value-based method, compensation cost is the excess,
if any, of the quoted market price of the stock at the grant date
or other measurement date over the amount the employee must pay to
acquire the stock. The Company uses the intrinsic value-based
method for stock-based compensation to employees. As a result, this
standard does not have any effect to the Company's financial
statement other than to require disclosure of the pro forma effect
on net income of using the fair value-based method of accounting.
In February 1997, SFAS 128, "Earnings per Share" and SFAS 129,
"Disclosure of Information About Capital Structure," were issued.
SFAS 128 establishes new standards for computing and reporting
earnings per share. SFAS 129 requires an entity to explain the
pertinent rights and privileges of outstanding securities. The
Company adopted these new standards in the period ended December
31, 1997. All prior period earnings per share data have been
restated for the adoption of SFAS 128. The effect of adoption was
not material.
In June 1997, SFAS 130, "Reporting Comprehensive Income," was
issued. SFAS 130 established new standards for reporting
comprehensive income and its components and is effective for fiscal
years beginning after December 15, 1997. The Company's
comprehensive income is the same as net income for the periods
presented.
In June 1997, the Financial Accounting Standards Board issued SFAS
131, "Disclosure About Segments of an Enterprise and Related
Information." SFAS 131 changes the standards for reporting
financial results by operating segments, related products and
services, geographical areas and major customers. The Company must
adopt SFAS 131 no later than December 31, 1998. The Company
believes that the effect of adoption will not be material.
8
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KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 4 Contract With The Havana Group, Inc.
Effective January 1, 1998, the Company contracted with The Havana
Group, Inc.("Havana") at an annual fee of approximately $206,100
for the administrative, executive and accounting services, as
outlined below, and $2.40 per order processed, to be performed by
the Company, for Havana. The Company will also receive 5% of
Havana's 1998 pre-tax profit in connection with these
administrative and fulfillment services.
<TABLE>
<S> <C>
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
------
------
</TABLE>
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 7) 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 5).
9
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KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 5. Stockholders' Equity (continued)
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.
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 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
Kids Stuff, Inc. 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 March 31, 1998, and had a balance of
$732,000 at March 31, 1998. The line is secured by assets of the
Company, as well as the assets of Duncan Hill and another Duncan
subsidiary, The Havana Group, Inc.("Havana"), formerly E. A. Carey
of Ohio, Inc. The repayment of the facility is guaranteed by Mr.
Miller, the Company's Chief Executive Officer and Havana. The
credit facility extends through June 30, 1998, and a condition of
renewal is that the Company maintain a zero balance on the credit
line
10
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KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 6. Note Payable - Line of Credit (continued)
for a period of thirty consecutive days sometime during the course
of each year. The weighted average interest rate for the quarters
ended March 31, 1998 and 1997 was 9.5% and 9.25%, respectively, and
9.4% for the year ended December 31,1997. Due to the current nature
of the liability, the carrying amount of the line approximates fair
value.
Note 7. Long-Term Debt - Related Parties
A. Long-term debt - related parties consists of the following at
March 31, 1998 (unaudited) and December 31, 1997.
<TABLE>
<CAPTION>
March 31, December 31,
-------- -----------
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 $300,000
Note Payable - (bridge lenders) - The entire principal
plus interest at 8.0%, was paid off during 1997 ... -- --
Note Payable - (bridge lenders) - The entire principal
plus interest at 8.0%, was paid off during 1997 ... -- --
-------- --------
300,000 300,000
Less current portion ............................ 100,000 100,000
-------- --------
$200,000 $200,000
-------- --------
-------- --------
</TABLE>
B. Principal payments required to be made on long-term debt - related
parties are as follows:
<TABLE>
<CAPTION>
Year
<S> <C>
1998 $ 100,000
1999 100,000
2000 100,000
-------
$ 300,000
-------
-------
</TABLE>
11
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KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
<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>
The purchase price was allocated to the net assets acquired based
on fair values as follows:
<TABLE>
<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
</TABLE>
12
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KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 8. Acquisition of The Natural Baby Catalog (continued)
<TABLE>
<S> <C>
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:
<TABLE>
<CAPTION>
1997
--------------
<S> <C>
Sales .............................. 13,954,877
Net Income ......................... 298,835
Earnings per share ................. .08
</TABLE>
Note 7. 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.
13
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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 quarter of 1998
net sales were $1,186,012, an increase of 67.5% 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 year1997, the
second full year of Kids Club operations, net sales were $3.2 million. However,
during the first quarter of 1998 net sales were 16% 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.
RESULTS OF OPERATIONS
Three months ended March 31, 1998 compared to the three months ended March 31,
1997.
Revenues for the quarter ended March 31, 1998 increased 119% to $3,204,877,
compared with $1,465,541 for the same period of 1997. Net profits for the first
quarter of 1998 improved to $59,060 compared with a net loss of ($158,956) for
the same period in 1997.
Approximately 80% of our increased revenues were attributed to The Natural Baby
Catalog. Combined revenues from our Perfectly Safe and Kids Club catalogs
increased 24.5% compared with 1997, producing the remainder of our overall
revenue increase.
14
<PAGE>
Cost of sales increased from 56.3% of net sales in 1997 to 62.5% in 1998. The
change is attributable to post holiday returns and the shipping rate increase
imposed by United Parcel Service during February.
Selling expenses, consisting of advertising and marketing costs, were 24.0% of
net sales in the first quarter of 1998, compared with 40.6% in the first quarter
of 1997. This 40.9% 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. Additionally, we improved the productivity of
our Perfectly Safe and Kids Club catalog mailings during the first quarter of
1998, which resulted in lower selling expenses compared with the first quarter
of 1997.
General and Administrative expenses increased by $176,798, but improved from
12.9% of net sales in 1997 to 11.4% this quarter. As a result of the Natural
Baby acquisition, the growth of our operation has given rise to higher support
costs, although proportionately lower than the increase in sales. Costs of
outside legal and accounting services have also 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
$73,569, including order fulfillment costs, as compared to approximately $95,000
allocated last year.
Net income improved by $218,016 this quarter as compared to the same quarter
last year. Last year's quarter net loss amounted to 10.8% of net sales, while
net income for the current quarter amounted to 1.8% of sales. The earnings
improvement is a direct result of the increase in revenues.
Liquidity and Capital Resources
At March 31, 1998, our accumulated deficit improved by $59,060 from December 31,
1997 because of first quarter earnings performance.
In addition to net earnings, cash provided by operating activities was increased
by non-cash charges of $39,859 for depreciation and goodwill amortization.
Working capital changes used $56,659 of cash, primarily due to increased
deferred catalog expense of $245,112. Higher volume mailings of our Spring
catalogs, as compared to the first quarter of 1997, accounts for the increased
deferred expense.
At March 31, 1998, the balance on our credit line was $732,000, having borrowed
$61,000 during the quarter. Our current credit line is $800,000, payable on
demand. The line is secured
15
<PAGE>
by the assets of Kids Stuff, The Havana Group and Duncan Hill, and is guaranteed
by our CEO and The Havana Group. The interest rate is 1% over prime.
With respect to financing activities, the borrowing on the credit line was
offset by the increase in amounts due from affiliates of $7,072. That increase
relates to unpaid administrative support and fulfillment services we provided to
Havana during the quarter.
Overall, we expect to be able to meet our cash needs through ongoing operations
and existing credit facilities.
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.
16
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Fork 8-K
(a) Exhibits filed as part of this report:
27. Financial Data Schedule
(b) No report on form 8-K was filed during the first quarter of 1998.
17
<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:
------------------- ------------------------------
William Miller, CEO
Date:
------------------- ------------------------------
William Evans, VP of Finance
Mr. Miller has executed this quarterly report on form 10-QSB both on behalf of
the Registrant and in his capacity as its chief executive officer.
Mr. Evans has executed this quarterly report on form 10-QSB both on behalf of
the Registrant and in his capacity as its vice president of finance and
operations.
18
<TABLE> <S> <C>
<PAGE>
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