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, 2000
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.)
7835 FREEDOM AVENUE, N.W., NORTH CANTON, OHIO 44720
(ADDRESS OF PRINCIPLE EXECUTIVE OFFICES) (ZIP CODE)
(330) 492-8090
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
4450 BELDEN VILLAGE STREET, N.W., SUITE 406, CANTON, OHIO 44718
(REGISTRANT'S FORMER ADDRESS)
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 May 15, 2000, there were 3,625,001 shares of the Registrant's Common
Stock $.001 par value issued and outstanding.
Transitional Small Business Disclosure Format.
Yes [ ] No [ X ]
<PAGE>
INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance Sheets - March 31, 2000 (Unaudited) and December 31, 1999..........................................3
Statements of Operations - Three Months Ended March 31, 2000 and 1999 (Unaudited)..........................5
Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999 (Unaudited).........................6
Notes to Financial Statements..............................................................................7
Item 2 - Management's Discussion and Analysis or Plan of Operations........................................12
Other Information..........................................................................................15
Signature Page.............................................................................................16
</TABLE>
<PAGE>
KIDS STUFF, INC.
Balance Sheets
<TABLE>
<CAPTION>
(UNAUDITED)
March 31 December 31,
2000 1999
ASSETS:
CURRENT ASSETS
<S> <C> <C>
Cash .................................. $ 229,546 $ 859,431
Accounts receivable ................... 165,970 257,574
Inventories ........................... 1,940,795 2,045,005
Deferred catalog expense .............. 745,751 740,425
Due from affiliates ................... 18,326 234,390
Prepaid expenses ...................... 153,004 170,871
Total Current Assets .............. 3,253,395 4,307,696
PROPERTY & EQUIPMENT:
Land .................................. 214,000 214,000
Building and improvements.............. 2,028,245 2,026,172
Data processing equipment ............. 442,134 401,182
Leasehold Improvements ................ 26,528 34,074
Web Site .............................. 185,661 132,891
Machinery and equipment ............... 93,531 86,901
Furniture and fixtures ................ 137,134 126,211
3,127,233 3,021,431
Less accumulated depreciation ......... 242,854 206,652
2,884,379 2,814,779
OTHER ASSETS, net of accumulated amortization
Goodwill .............................. 1,001,530 1,015,805
Catalog development and other 349,108 368,995
Customer List ......................... 312,619 330,655
Deferred Financing Fee ................ 66,913 82,055
1,730,170 1,797,510
$7,867,940 $8,919,985
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
KIDS STUFF, INC.
Balance Sheets
<TABLE>
<CAPTION>
(UNAUDITED)
March 31, December 31,
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Current Portion of long-term debt $ 157,000 157,000
Accounts payable ................ 2,002,810 $ 2,352,318
Line of credit .................. 500,000 500,000
Customer advances and other ..... 42,657 15,302
Accrued expenses.............. 104,402 111,393
Total Current Liabilities ... 2,806,869 3,136,013
LONG-TERM DEBT, NET OF CURRENT PORTION 1,801,137 1,998,122
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 per share,
10,000,000 shares authorized
Common stock .................... 3,521 3,513
Preferred stock Series A......... 5,000 5,000
Preferred Stock Series 1...... 460 460
Additional paid-in capital ... 5,171,481 5,167,189
Retained earnings (deficit) ..... (1,920,529) (1,390,312)
Total Stockholders' Equity .. 3,259,933 3,785,850
$ 7,867,940 $ 8,919,985
=========== ===========
</TABLE>
<PAGE>
KIDS STUFF, INC.
Statement of Operations
<TABLE>
<CAPTION>
(UNAUDITED)
Three Months Ended March 31,
2000 1999
<S> <C> <C>
Net Sales $4,004,988 $3,633,558
Cost of Sales 2,410,389 2,073,390
Gross Profit 1,594,599 1,560,168
Selling Expenses 1,395,931 1,013,567
General and Administrative Expenses 695,125 402,012
(Loss) income From Operations (496,457) 144,589
Other Income (Expense)
Interest Expense (33,759) (16,405)
Net Income (Loss) $(530,216) 128,184
================ ===============
Basic and Diluted Income (Loss)
Per Share after considering preferred stock
cumulative dividends ($0.15) $0.04
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
KIDS STUFF, INC.
Statement of Cash Flows
<TABLE>
<CAPTION>
(UNAUDITED)
Three Months Ended March 31
2000 1999
Cash Flows From Operating Activities:
<S> <C> <C>
Net Income .......................................... $ (530,216) $ 128,184
Adjustments to reconcile net income (loss)to net
cash provided (used) by operating activities:
Depreciation and amortization .................. 103,542 132,612
Decrease(increase)in accounts receivable ....... 91,604 (79,258)
Decrease(increase) in inventories .............. 104,210 (84,811)
(Increase) in deferred catalog expense ......... (5,326) (282,531)
Decrease in prepaid expenses ................... 17,867 123,637
(Decrease) in accounts payable,
customer advances and accrued expenses ... (329,144) (454,821)
Net cash (used) by operating activities .................. (547,463) (516,989)
Cash Flows From Investing Activities:
Investment in property and equipment and other assets (105,802) (26,606)
Cash Flows From Financing Activities:
Payments on long-term debt .......................... (196,985) --
Sale of Common Stock ............................... 4,300 --
Sale of preferred stock ............................. -- 1,960,557
Decrease in due from affiliates ..................... 216,064 115,223
Net cash provided by financing activities ................ 23,379 2,075,780
Net Decrease (increase) in Cash .......................... (629,885) 1,532,185
Cash - Beginning ......................................... 859,431 25,425
Cash - Ending ............................................ $ 229,546 $ 1,557,610
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1: Business Description and Summary of Significant Accounting Policies
Business Description - Kids Stuff, Inc. ("Kids Stuff" or the "Company") is
in the mail order business and sells to customers throughout the United States.
Duncan Hill, Inc. owns 81% of the Company's outstanding voting capital stock as
of March 31, 2000. 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. LittleFeet, a division of the Company, sells
footwear and related products to infants and children. Products are purchased
from a variety of vendors.
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, 2000, results
of operations for the three month periods ended March 31, 2000 and March 31,
1999, and cash flows for the three month periods ended March 31, 2000 and March
31, 1999. The results of operations for the three month period is 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 for basic earnings per
share. Diluted earnings per share are calculated to include the dilutive effect
of stock options and warrants, if any. The number of shares outstanding in
computing basic earnings per share the three month periods ended March 31, 2000
and 1999 was 3,520,856 and 3,512,856, respectively. The effect of the
convertible preferred stock and stock warrants outstanding was antidilutive.
New Authoritative Pronouncements
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an amendment of FASB Statement No. 133," which
postponed the effective date of SFAS No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities," to all fiscal years beginning
after June 15, 2000. The Company does not anticipate having these types of
hedges, and the effect of adoption is expected to be immaterial.
The Accounting Standards Executive Committee issued Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use," and SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which are effective for years beginning after Dec. 31, 1998. The
Company's adoption of SOP 98-1 and SOP 98-5 had no material effect on its
results of operations or financial position.
In December 1999, The Securities and Exchange Commission issued Staff
Accounting Bulleting (SAB) 101, Revenue Recognition in Financial Statements."
SAB 101 provides guidance on applying accepted accounting principles to revenue
recognition issues in financial statements. This statement is effective for all
fiscal quarters beginning in the second quarter of 2000. The Company is
evaluating the effect the adoption may have on the Company's results of
operations and financial position.
Note 2: Agreement with Affiliated Company
Duncan Hill, Inc. owns 87% of the outstanding voting capital stock of the
Havana Group, Inc. (Havana). In January 1998, the Company contracted with Havana
to provide administrative, executive, and accounting services. At January 1,
1999 the agreement was modified and extended on a month-to-month basis as Havana
<PAGE>
began to incur direct costs for its administrative functions. Havana pays to
Kids an accounting, data processing, and administrative charge of $15,000 per
year. Additionally, a $1.75 per shipment for warehouse services was paid by
Havana until March 8, 2000 when Havana assumed their own warehousing facility
and no longer required Kids Stuff Inc.'s fulfillment services.
Through June 30, 1999, Havana's accounts receivable and inventories are
pledged as collateral on Kids line of credit, and Havana also acted as a
guarantor. In July 1999 Havana's liability was released as a part of a general
restructuring of the Kids line of credit.
Note 3: Stockholders' Equity
A. Common Stock
As of December 31, 1999 and March 31, 2000, the Company had common stock at
a par value of $.001 per share with 25,000,000 shares authorized and 3,520, 856
shares issued and outstanding.
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.
Series A Preferred Stock
As of December 31, 1999 and March 31, 2000, the Company had issued and
outstanding 5,000,000 shares of Series A Preferred Stock, $.001 par value.
Duncan Hill holds these shares. The holder of the Series A Preferred Stock is
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.
Series 1 Preferred Stock
In March 1999, the Company completed a public offering of securities
through Fairchild Financial Group, Inc. in which 460,000 shares of Series 1
Preferred Stock were issued. The holders of the Series 1 Preferred Stock are
entitled to a liquidation preference of $5.50 per share and to vote on matters
submitted to a vote of the shareholders. Each Series 1 Preferred Share receives
a cumulative annual dividend of $0.495, or 9.0% of the liquidation preference
per share, payable in cash or common stock at the option of the Company. Each
Series 1 Preferred Share is convertible into two shares of common stock at the
option of the holder, commencing September 3, 2000. Each Series 1 Preferred
Share is redeemable at the option of the Company at a price of $7.20 per share
commencing September 3, 2000.
C. Warrants
Class A Warrants
The Company issued 2,400,000 Class A Warrants in 1997 in conjunction with
an offering of its common stock. Each Class A Warrant entitles the holder to
purchase one share of common stock at a price of $5.00 for a period of four
years commencing June 26, 1998 and expiring June 26, 2002. The Company may
redeem the Class A 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. All 2,400,000 Class A Warrants are
outstanding as of December 31, 1999 and March 31, 2000.
<PAGE>
Preferred Warrants
The Company issued 920,000 Series 1 Preferred Stock Purchase Warrants
(Preferred Warrant) in March 1999 in conjunction with an offering of its
preferred stock. Each Preferred Warrant entitles the holder to purchase one
share of Series 1 Preferred Stock at an exercise price of $6.00 per share
commencing September 3, 2000 and expiring March 3, 2002. The Company shall
redeem the Preferred Warrants at a price of $1.20 per warrant in the event it
elects to redeem its Series 1 Preferred Stock in accordance with the terms
summarized in Note 3B above. All 920,000 Preferred Warrants are outstanding as
of March 31, 2000.
Note 4. Borrowings
In July 1999 Kids Stuff obtained a new credit facility from Bank One, N.A.
Bank One extended a 24-month revolving credit line in the amount of $500,000,
bearing interest at prime plus 1%. Additionally, Bank One extended a 60-month
term loan to the Company for $300,000, bearing interest at 8.78%. The Company's
previously outstanding $800,000 line of credit was retired with the proceeds of
the new borrowings. The new loans are secured by the assets of the Company, a
third mortgage on the Company's real estate, cross collateralization of life
insurance on the lives of Mr. and Mrs. Miller, and carry unconditional and
unlimited guarantees of Mr. William Miller and Mrs. Jeanne Miller.
In July 1999, the Company finalized an agreement to purchase a building
located in North Canton, Ohio, which will serve as the office and warehouse
facilities for the Company, Havana, and Duncan Hill. The purchase price of the
building was $2,200,000. The purchase was partially financed through a
commercial real estate loan from Bank One, N.A. in the amount of $1,690,000. The
loan has a 20-year amortization period with an expiration date of July 7, 2009,
and carries a variable interest rate based upon the 30 day LIBOR plus 2.75%. The
rate of interest at March 31, 2000 was 8.71%. The loan is secured by a first
mortgage on the Company's real estate, guaranteed by Duncan Hill, Inc., Mr.
William Miller, Mrs. Jeanne Miller, and is cross collateralized with assignment
of life insurance.
Note 5. Employment Agreements
The Company has entered into separate five-year employment agreements with
William L. Miller and Jeanne E. Miller, effective January 1, 1997, pursuant to
which Mr. Miller is to serve as Chairman of the Board and Chief Executive
Officer of the Company and Mrs. Miller is to serve as its President. The
employment agreements provide for an annual base salary of $125,000 for Mr.
Miller and $105,000 for Mrs. Miller, subject to annual review for increase by
the Company. The employment agreements also provide for the eligibility of these
executives to receive annual cash bonuses under the Company's Incentive
Compensation Plan, and each of Mr. Miller and Mrs. Miller's respective
employment agreements grant an option to purchase 100,000 shares of the
Company's Common Stock, which vest 25% on each of the first four anniversary
dates commencing January 1, 1998, regardless of whether the executive is
employed on such dates by the Company. The vested options will be immediately
exercisable and will expire ten years from the date of the agreement. The
exercise price of the options when granted was $5.00 per share, subject to
downward adjustments in the exercise price if the Company meets certain
performance goals. In September 1999, the Company's Board of Directors cancelled
the above-mentioned options, and issued new options at a fixed exercise price of
$1.33, representing the market price of the Company's common stock for the week
ended September 17, 1999. Other terms and conditions of the option agreements
remained the same.
Mrs. Miller also received an option to purchase 100,000 shares of the
Company's unregistered common stock as a signing bonus on October 16, 1998. The
exercise price of the options at the time of the grant was $2.50 per share, and
provided that the options expire 10 years from the date of the grant. In
September 1999, the Company's Board of Directors cancelled this option, and
issued Mrs. Miller a new option at an exercise price at $1.33, representing the
market price of the Company's common stock for the week ended September 17,
1999. Other terms and conditions of the previous option agreement remained the
same.
Note 6. Incentive Plans
A. Incentive Compensation Plan
<PAGE>
During 1997, the Company adopted an Incentive Compensation Plan (the
"Plan"). The Plan is designed to motivate employee participants to achieve the
Company's annual strategic goals. Eligibility for participation in the Plan is
limited to the Chief Executive Officer and the President of the Company, and
such other employees of the Company as may be designated by the Board of
Directors from time to time. For each fiscal year of the Company, the Board will
establish a bonus pool not to exceed 10% of the Company's operating income. The
amount of such pool with respect to any year shall be determined subsequent to
the end of that year upon the determination of the Company's operating income
for that year. Each participant in the Plan is eligible to receive from the
bonus pool an annual award of up to 50% of the participant's base salary. There
were no awards in 1999 or the first three months of 2000.
B. Stock Incentive Plan
During 1997, the Company adopted a Stock Incentive Plan (Incentive Plan).
Under the Incentive Plan, the Compensation Committee of the Board of Directors
may grant stock incentives to key employees and the directors of the Company
pursuant to which a total of 400,000 shares of Common Stock may be issued;
provided, however, that the maximum amount of Common Stock with respect to which
stock incentives may be granted to any person during any calendar year shall be
20,000 shares, except for a grant made to a recipient upon the recipients
initial hiring by the Company, in which case the number shall be a maximum of
40,000 shares. These numbers are subject to adjustment in the event of a stock
split and similar events. Stock incentive grants may be in the form of options,
stock appreciation rights, stock awards or a combination thereof. No stock
incentives were granted under the Incentive Plan in 1998; the Company approved
the issuance of 65,000 options at September 24, 1999. The exercise price of the
options are $1.33 per share, representing the market value of the Company's
common stock during the week ended September 17, 1999.
Note 7. Non-Qualified Stock Option Agreement
During 1998, the Company entered into a non-qualified stock option
agreement with Clark D. Swisher and Alfred M. Schmidt, Jr., directors of the
Company. Each of Mr. Swisher and Mr. Schmidt were granted the option to purchase
30,000 shares of the Company's common stock, which vest 25% on August 1, 1998
and 25% on each January 1, 1999, January 1, 2000, and January 1, 2001. The
vested options will be immediately exercisable and will expire 10 years from the
date of the agreement. The exercise price of the options was $2.50 per share of
common stock. In September 1999, the Company's Board of Directors cancelled the
options, and issued new options at an exercise price at $1.33, representing the
market price of the Company's common stock for the week ended September 17,
1999.
In September 1999, the Company entered into a non-qualified stock option
agreement with Debra P. Gibbs upon her appointment as a Director of the Company.
Mrs. Gibbs was granted the option to purchase 30,000 shares of the Company's
common stock, which vest 25% on September 21, 1999, and 25% each on January 1,
2001, January 1, 2002, and January 1, 2003. The vested options will be
immediately exercisable and will expire 10 years from the date of the agreement.
The exercise price of the options is $1.33 per share of common stock.
Note 8. Purchase of Land and Building
In July 1999, the Company finalized an agreement to purchase a building
located in North Canton, Ohio, which will serve as the office and warehouse
facilities for the Company, Havana, and Duncan Hill. The purchase price of the
building was $2,200,000. The purchase was partially financed through a
commercial real estate loan in the amount of $1,690,000 (See Note 4). The
building is being depreciated over 40 years on a straight-line basis at $47,500
per year.
<PAGE>
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 1999, sales had increased to over $6.1 million, which resulted in an
annual compound growth rate of over 15%.
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 1999, the fourth full year of Kids Club operations, net sales were $2.8
million.
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 1999, The
Natural Baby Catalog generated net sales of $6.8 million.
In the fourth quarter of 1998 we opened "Kids Catalog Outlet", a retail
store in Canton, Ohio, for purposes of creating incremental sales and
liquidating excess and obsolete inventory. The store is 3,300 square feet, and
is located in a strip mall in the Belden Village area of Canton, Ohio. The store
design and fixture selection was based upon appeal to the generally upscale
consumer demographics that we attract in our catalogs, with prices and sales to
emphasizing value.
In the third quarter of 1999 we introduced our Healthy Feet Catalog,
offering over 1,200 selections and sizes of shoes, with an emphasis on ages
birth to age six. To support this new venture, Kids Stuff, Inc. mailed 402,000
catalogs to its target audiences. Healthy Feet, a "kids shoe catalog" features
quality shoes from brands such as Sketchers, Converse, Keds and Bear Feet. In
January, 2000 Healthy Feet was renamed to LittleFeet. Net sales of approximately
$300,000 have been generated.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1999.
Sales for the quarter ended March 31, 2000 increased 10.2% to $4,004,988,
compared with $3,633,558 for the same period of 1999. The net loss for the first
quarter of 2000 was $530,216 compared with income of $128,184 for the same
period in 1999.
Cost of sales increased from 57.1% of net sales in 1999 to 60.2% in 2000.
This cost of sales increase was due to higher than expected acquisition costs
from the Company's vendors.
Shipping costs increased 2.8% as a percentage of sales, reflecting the use
of The United States Postal Services as the venue for shipping of packages
during the first quarter of the year 2000. As of March 31, 2000, the Company has
negotiated an additional contract with Airborne Express, Inc. for delivery of
its products. Advertising costs for the first quarter 2000 were $1,264,927 which
is 31.6% of sales for the quarter as compared to $811,341 for first quarter
1999, and 22.3% as compared to 1999 first quarter sales. This increase was due
to increased catalog advertising and marketing costs which was a direct
reflection of the Company aggressively prospecting for new customers during the
first quarter of 2000. General and Administrative Expenses increased from
$440,798 in 1999, or 12.1% of sales to $695,125, or 17.4% of sales in the first
quarter 2000. This increase is directly related to additional employee expense
as well as additional office and equipment expense during the first quarter.
Net income was reduced by $658,400 this quarter as compared to this quarter
last year. Last year's net income was 3.5% of net sales while the loss for the
quarter was 13.2% of sales. This loss represents in the short term the
continuous efforts the Company is making to expand its customer base and
infrastructure in order to achieve future benefits, goals and objectives of the
organization. Management believes that the balance of calendar 2000 will show
more favorable Results of Operations.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended March 31, 2000, our accumulated deficit increased
$530,216 from December 31, 1999 due to the net loss. In addition to the net loss
of $530,216, cash used by operating activities included an increased in deferred
catalog expense of $5,326 and a decrease in accounts payable, customer advances,
and accrued expenses of $329,143. These uses were offset by non-cash charges of
$103,542 for depreciation and amortization compared to $132,612 for the first
quarter in 1999. Additionally, cash was provided by a decrease in accounts
receivable and inventory of $91,604 and $104,210, respectively. Prepaid expenses
also provided $17,867 of cash to operating activities. Cash was used for
investing activities of $105,802 to purchase new equipment and website
development. With respect to financing activities, our cash increased $216,064
from a decrease in due to/from affiliates and proceeds from sale of stock of
$4,300. Our cash was reduced by $196,985 for payments on our long-term debt.
In March 1999 the Company sold 460,000 units in a public offering, each
Unit consisting of one share of preferred stock and two preferred stock
warrants. The proceeds of the offering, net of expenses, were $1,960,557. The
proceeds are being used for working capital purposes, and to provide for
improved efficiency in our operations.
At March 31, 1999, our accumulated deficit improved by $128,184 from December
31, 1998 because of first quarter earnings performance.
In addition to net earnings, cash provided by operating activities was
increased by non-cash charges of $132,612 for depreciation and goodwill
amortization, compared with non-cash charges of $39,859 during the first quarter
of 1998. Increased charges in 1999 are as a result of capitalizing certain art
and design revisions for our catalogs. Working capital changes used a net of
$777,785 of cash in 1999 compared with $56,659 during the first quarter of 1998.
During 1999 the Company increased deferred catalog expense of $282,531 and
reduced accounts payable and other liabilities of $454,821.
With respect to financing activities, our cash position improved from the
sale of preferred stock in the amount of $1,960,557 and the reduction in amounts
due from affiliates in the amount of $115,223.
In the third quarter of 1999 Kids Stuff restructured its banking facility
with Bank One, N.A. As a result, Bank One provided commercial real estate
financing for the purchase of our building in the amount of $1,690,000. In July
1999 Kids Stuff obtained a new credit facility from Bank One, N.A. Bank One
extended a 24 month revolving credit line in the amount of $500,000, bearing
interest at prime plus 1%. Additionally, Bank One extended a 60 month term loan
to the Company for $300,000, bearing interest at 8.78%. The Company's previously
outstanding $800,000 line of credit was retired with the proceeds of the new
borrowings. The new loans are secured by the assets of the Company, a third
mortgage on the Company's real estate, cross collateralization of life insurance
on the lives of Mr. And Mrs. Miller, and carry unconditional and unlimited
guarantees of Mr. William Miller and Mrs. Jeanne Miller.
In January 2000, Kids Stuff obtained a bridge loan line of credit from Bank
One, N.A. of $300,000. This line of credit was collateralized by cash held in an
investment account of Kids Stuff in order to reduce interest expense associated
with the bridge loan. As of May 15, 2000, Kids Stuff restructured its bank
financing facility with Bank One, N.A. As a result, Bank One provided working
capital financing to enable the Company to further grow its customer base and
enhance its inventory position. Bank One N.A. extended a $300,000 unsecured line
of credit which paid off the bridge loan line of credit and released the cash
collateral to the Company. This line of credit expires December 31, 2000. Bank
One N.A. extended an additional line of credit of $1,000,000 which will be based
on a negotiated formulation of Company Receivables and Inventory. This facility
replaces the 24 month revolving line of credit in the amount of $500,000
previously obtained from Bank One, N.A. Both facilities bear interest at prime
plus 1%.
Overall, we expect to meet our current cash needs through ongoing
operations and from our present working capital position.
<PAGE>
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 first quarter of 2000.
<PAGE>
KIDS STUFF, INC. FORM 10-QSB MARCH 12, 2000
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: 5/17/00
/s/WILLIAM MILLER
William Miller, CEO and CFO
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND RELATED FOOTNOTES THERETO, OF KIDS STUFF, INC.
Financial Data Schedule
Exhibit 27
