<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A2
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1995
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________________ to __________________
Commission file number 0-15929
BABYSTAR, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 11-2726109
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
165 University Ave, Westwood, MA 02090
(Address of Principal Executive Offices)
(617) 326-4100
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 __________
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes __________ No __________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: Common Stock, $0.01 par value
4,712,795 shares at May 15, 1995
Traditional Small Business Disclosure Format (check one):
Yes __________ No __________
<PAGE>
FORM 10-QSB/A2 QUARTERLY REPORT
BABYSTAR, INC. AND SUBSIDIARY
INDEX
PAGE
----
PART I: FINANCIAL INFORMATION
ITEM 1.
Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 3
Consolidated Statements of Operations -Three Months
Ended March 31, 1995 and 1994 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1995 and 1994 6
Notes to Financial Statements 7-8
ITEM 2.
Management's Discussion and Analysis of Financial
Conditions and Operations 9
PART II: OTHER INFORMATION
ITEMS 1-6. 10
Signatures 11
2
<PAGE>
BABYSTAR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
CURRENT ASSETS
Cash $66,308 $2,404,000
Accounts receivable 1,523,778
Inventories 5,847,949
Note receivable 150,000 241,000
Other current assets 185,591 24,000
----------- -----------
Total current assets 7,773,626 2,669,000
PROPERTY AND EQUIPMENT, AT COST
Furniture, equipment, and leasehold
improvements 154,511 29,000
Less accumulated depreciation (68,772) (27,000)
----------- -----------
Property and equipment, net 85,739 2,000
OTHER ASSETS
Security deposits 14,396 7,000
Goodwill, net of accumulated amortization 1,158,194
----------- -----------
Total other assets 1,172,590 7,000
----------- -----------
$9,031,955 $2,678,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Note payable, bank $1,675,820 $139,000
Accounts payable 3,455,033
Accrued expenses and other accrued
liabilities 503,912 97,000
Current portion of capital leases
obligations 12,770
----------- -----------
Total current liabilities 5,647,535 236,000
OTHER LIABILITIES
Capital lease obligations, net of
current portion 14,362
STOCKHOLDERS' EQUITY
Non-designated preferred stock, par
value $.01 per share - 5,000,000
authorized; no shares issued and
outstanding
Common stock, par value $.01 per share -
20,000,000 authorized; 4,712,795
shares issued and outstanding at
March 31, 1995 and 3,512,795
shares at December 31, 1994 47,128 35,000
Additional paid-in capital 8,805,251 7,497,000
Retained earnings(deficit) (5,482,321) (5,090,000)
----------- -----------
Total stockholders' equity 3,370,058 2,442,000
----------- -----------
$9,031,955 $2,678,000
----------- -----------
----------- -----------
See Notes to Financial Statements.
3
<PAGE>
BABYSTAR, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
------------------------------
1995 1994
---- ----
SALES $3,881,354 $0
COST OF SALES 3,379,820 0
------------ ---------
GROSS PROFIT 501,534 0
OPERATING EXPENSES 573,557 8,000
------------ ---------
OPERATING INCOME(LOSS) (72,023) (8,000)
OTHER INCOME (EXPENSE);
Rental/Other income 4,843
Non-recurring loss on disposal of
building (47,000)
Interest income (expense) (19,874) 28,000
------------ ---------
Total other income (expense) (15,031) (19,000)
------------ ---------
INCOME BEFORE PROVISION FOR INCOME TAXES (87,054) (27,000)
PROVISION FOR STATE INCOME TAXES 8,920
------------ ---------
INCOME(LOSS) FROM CONTINUING OPERATIONS (95,974) (27,000)
INCOME(LOSS) FROM DISCONTINUED OPERATIONS (296,824) (491,000)
------------ ---------
NET INCOME (LOSS) ($392,798) ($518,000)
------------ ---------
------------ ---------
Weighted average number of shares 4,312,795 3,512,795
Earnings (loss) per share:
Continuing operations ($0.02) ($0.01)
Discontinued operations ($0.07) ($0.14)
------------ ---------
Net ($0.09) ($0.15)
------------ ---------
------------ ---------
See Notes to Financial Statements.
4
<PAGE>
BABYSTAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
MARCH 31, 1995
<TABLE>
<CAPTION>
Additional Retained
Preferred Stock Common Stock Paid-In Earnings
Shares Amount Shares Amount Capital (Deficit) Total
------ ------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-January 1, 1995 0 $0 3,512,795 $35,128 $7,497,251 ($5,089,523) $2,442,856
Net (loss) for the 3 months
ended March 31, 1995 (392,798) ($392,798)
Issuance of shares under
merger agreement 1,200,000 12,000 1,308,000 $1,320,000
----- ----- ---------- ------- ---------- ----------- ----------
Balance-March 31,1995 0 $0 4,712,795 $47,128 8,805,251 ($5,482,321) $3,370,058
----- ----- ---------- ------- ---------- ----------- ----------
----- ----- ---------- ------- ---------- ----------- ----------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
BABYSTAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 31, 1994
(Unaudited)
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($392,798) ($518,000)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Loss on disposal of building 47,000
Depreciation and amortization 22,714 7,000
Changes in assets and liabilities:
Accounts receivable (966,320) (145,000)
Inventories (2,401,905) (371,000)
Other assets 138,997 78,000
Accounts payable 1,411,381 248,000
Bankers Acceptances Payable (41,000)
Other liabilities 87,479 25,000
------------ ------------
Total adjustments (1,707,654) (152,000)
------------ ------------
Net cash provided by (used in)
operating activities (2,100,452) (670,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of notes receivable 91,000 1,050,000
Issuance of notes receivable (1,259,000)
Acquisition of property and equipment (10,698)
Payments related to disposal of building (77,000)
Costs related to purchase of business (86,374)
Cash acquired upon purchase of business 1,807
Payments for liabilities assumed in
purchase of business (222,000)
------------ ------------
Net cash provided by (used in)
investing activities (226,265) (286,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable, bank 1,051,245
Note payable, stockholder (1,059,161)
Payments on capital lease obligations (3,059)
------------ ------------
Net cash provided by (used in)
financing activities (10,975) 0
------------ ------------
NET INCREASE (DECREASE) IN CASH (2,337,692) (956,000)
CASH, BEGINNING OF PERIOD 2,404,000 2,894,000
------------ ------------
CASH, END OF PERIOD $66,308 $1,938,000
------------ ------------
------------ ------------
See Notes to Financial Statements.
6
<PAGE>
BABYSTAR INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
In November 1994, the Company sold its wholly-owned subsidiary, Travel
Safety Children's Products, Inc. to an entity whose principal was a former
consultant to the Company for approximately $776,000, comprised of $136,000 in
cash and $640,000 in the form of a promissory note. The note, which bears
interest at a rate of 8.5% is due in 14 equal monthly installments commencing in
December of 1994.
In February 1995, the Company acquired all of the assets of Datatrend, Inc.
for a purchase price of $1,406,000. The purchase price consisted of 1,200,000
shares of common stock valued at $1,320,000 and acquisition costs of $86,000.
The purchase price was allocated to the assets acquired and the liabilities
assumed as follows:
Inventory $3,446,000
Accounts payable and accrued expenses (2,100,000)
Accounts and notes payable to stockholders (1,406,000)
Excess of cost over acquired net assets 1,171,000
Notes payable and capital leases (655,000)
Accounts receivable 557,000
Other assets 310,000
Fixed Assets 83,000
-----------
$1,406,000
-----------
-----------
The excess of cost over acquired net assets is being amortized over 15 years.
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiary, Datatrend, Inc. All intercompany accounts and
transactions are eliminated in consolidation. Since discontinuing its car seat
business in November of 1994 as referenced above, the Company operations consist
solely of the operations of its wholly-owned subsidiary which is engaged in the
sale and distribution of computers and peripherals.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, which consist primarily of computer hardware, are stated at
the lower of cost or market. Cost is determined utilizing the first-in,
first-out (FIFO) method.
Property and Equipment
Items capitalized as property and equipment are stated at cost.
Depreciation is computed using accelerated methods calculated to depreciate the
cost of assets over their estimated useful lives.
Earnings(Loss) per Share
Earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding. Earnings per share do not give
effect to the outstanding warrants for the purchase of shares of common stock as
these warrants would be antidilutive.
7
<PAGE>
BABYSTAR INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(Continued)
Adjustments Included in Preparing Interim Financial Statements Pursuant to Item
310(b) Instruction 2 of Regulation S-B
The financial statements as of March 31, 1995 and for the three month
period ended March 31, 1995 are unaudited. Pursuant to Item 310(b) Instruction
2 of Regulation S-B, in management's opinion, all adjustments necessary in order
to make the financial statements not misleading have been made. Results of
operations for the three months ended March 31, 1995, are not necessarily
indicative of operations for the full year ending December 31, 1995.
NOTE 3 - NOTE PAYABLE, BANK
The Company's wholly-owned subsidiary, Datatrend, Inc., has a line of
credit agreement with a financial institution which permits borrowing of up to
the lesser of $2,500,000, or 70% of eligible accounts receivable plus 40% of
eligible inventory. The line of credit bears interest at prime rate plus 1.25%
and is collateralized by substantially all of the assets of the Company.
NOTE 4 - LEASE COMMITMENTS
The Company is party to a lease for office premises in New York pursuant to
a lease expiring in July 1997. Since the Company no longer anticipates the use
of these offices and has terminated all employees and business activities at
said premises, the Company accrued the sum of $72,000 as of December 31, 1994,
representing the approximate present value of all future payments due pursuant
to that lease. Rental payments are charged in reduction of that accrual as they
are paid.
The Company's wholly-owned subsidiary leases an office and warehouse facility
under an operating lease which expires in May 1996. Minimum annual rentals
through expiration are as follows:
Year ending December 31, 1995 $161,720
Year ending December 31, 1996 $ 63,780
NOTE 5 - CONTINGENT STOCK ISSUANCE FOR ACQUISITION OF DATATREND, INC.
Effective On February 1, 1995, the Company acquired all of the capital
stock of Datatrend, Inc. ("DTI") by merging a wholly owned subsidiary of the
Company into DTI. Pursuant to the terms of the Agreement and Plan of Merger
dated January 31, 1995, in exchange for the merger, the holders of DTI stock
received 1,200,000 shares of the Company's Common Stock as well as the right to
receive an aggregate of 1,200,000 additional shares if certain earnings tests
are met over a period of approximately two years.
8
<PAGE>
BABYSTAR INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
WORKING CAPITAL AND LIQUIDITY
Working Capital was $2,310,014 at March 31, 1995 as compared to
$2,433,000 at December 31, 1994, which represents a decrease of $122,986. The
decrease in working capital resulted primarily from a loss relating to
discontinuance of operations of the Company's prior subsidiary and closure of
its New York offices. In addition, the Company suffered a loss from operations
during the first quarter. The Company feels that this loss is attributable to a
combination of increased expenses related to the merger with DTI, as well as the
effect of the fact that the management of the Company and DTI devoted
significant efforts to consummating the transaction, thereby decreasing their
availability to direct their efforts towards operations during that period.
RESULTS OF OPERATIONS
In November 1994, the Company divested itself of its principal operating
subsidiary. The operations of this subsidiary are treated as discontinued in
the Company's financial statements. The Company also negotiated the termination
of an employment contract with its prior President and terminated all employees
and use of its former offices in New York. Expenses related to this termination
of its New York offices are treated as discontinued operations in the Company's
financial statements.
Effective On February 1, 1995, the Company acquired all of the capital
stock of Datatrend, Inc. ("DTI") by merging a wholly owned subsidiary of the
Company into DTI. DTI is a Massachusetts corporation incorporated under the
laws of the Commonwealth of Massachusetts in 1993. DTI is engaged in the
wholesale and retail distribution of new, used and refurbished computer hardware
and components. Substantially all of the Company's business operations are
currently conducted by its wholly-owned subsidiary, DTI.
The Company's revenues and expenses from operations (exclusive of losses
from discontinued operations) for the three months ended March 31, 1995,
reflect the operations of DTI since the effective date of the merger. The
revenues and expenses for the three months ended March 31, 1994, reflect the
business operations of the Company's subsidiary which was disposed of in
November of 1994. Since the business of the Company has substantially changed
in nature for these two periods, no meaningful comparison of financial
operations is possible. The Company's current operations have experienced a
minor loss in its first quarter of operation. Management attributes this loss
to several factors, the primary of which is the fact that the management of
DTI devoted a significant amount of its efforts during the first part of this
quarter to the transaction involving the merger of DTI. As a result, sales
and operational aspects of the Company were adversely affected. The Company
expects revenues to increase and operations to improve now that this
transaction has concluded. The Company also believes that the business for
the first quarter involves certain seasonal fluctuations affecting its sales
activities and expects that sales will increase in future quarters. There can
be no assurance that these operations will in fact improve or that sales will
in fact increase.
9
<PAGE>
BABYSTAR, INC. AND SUBSIDIARY
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
On February 1, 1995 the Company acquired DTI. Pursuant to the terms of
the Agreement and Plan of Merger dated January 31, 1995 (the "Agreement"), in
exchange for the merger, the holders of DTI stock received 1,200,000 shares of
the Company's Common Stock as well as the right to receive an aggregate of
1,200,000 additional shares if certain earnings tests are met over a period of
approximately two years.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the first
quarter of 1995.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. REPORTS OF FORM 8-K
A report on Form 8-K was filed on February 14, 1995 reporting a change in
control of management and the acquisition of material assets.
A report on form 8-K was filed on April 15, 1995 reporting financial
information for the subsidiary acquired by the Company effective February 1,
1995.
10
<PAGE>
BABYSTAR INC. AND SUBSIDIARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
BABYSTAR INC.
/s/ Mark A. Hanson
-------------------------------------
Mark A. Hanson
President and Chief Executive Officer
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 66,308
<SECURITIES> 0
<RECEIVABLES> 1,673,778
<ALLOWANCES> 0
<INVENTORY> 5,847,949
<CURRENT-ASSETS> 7,773,626
<PP&E> 154,511
<DEPRECIATION> 68,772
<TOTAL-ASSETS> 9,031,955
<CURRENT-LIABILITIES> 5,647,535
<BONDS> 0
<COMMON> 47,128
0
0
<OTHER-SE> 3,322,930
<TOTAL-LIABILITY-AND-EQUITY> 9,031,955
<SALES> 3,881,354
<TOTAL-REVENUES> 3,886,197
<CGS> 3,379,820
<TOTAL-COSTS> 3,953,377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,874
<INCOME-PRETAX> (87,054)
<INCOME-TAX> 8,920
<INCOME-CONTINUING> (95,974)
<DISCONTINUED> (296,824)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (392,798)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
