BABYSTAR INC
10QSB/A, 1997-02-03
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE
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                   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 June 30, 1995

/  /  Transition report under Section 13 or 15(d) of the Exchange Act

For the transition period from                            to
                               --------------------------    ------------------

Commission file number   0-15929
                       ----------------------------------
  
                          DATATREND SERVICES, 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.)


                    1515 Washington Street, Braintree, MA
- -------------------------------------------------------------------------------
                  (Address of Principal Executive Offices)

                               (617) 691-1200
- -------------------------------------------------------------------------------
              (Issuer's Telephone Number, Including Area Code)

                                BABYSTAR, INC.
- -------------------------------------------------------------------------------
      (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 August 15, 1995  

      Traditional Small Business Disclosure Format (check one):

Yes      X         No
    ------------      ------------
<PAGE 1>

                       FORM 10-QSB/A QUARTERLY REPORT
                       ------------------------------

                        BABYSTAR, INC. AND SUBSIDIARY
                        -----------------------------

                                    INDEX


                                                                PAGE
                                                                ----

Part I:                 FINANCIAL INFORMATION

Item  1.

      Consolidated Balance Sheets - June 30, 1995
       and December 31, 1994                                      3

      Consolidated Statements of Operations -Three Months
       and Six Months Ended June 30, 1995 and 1994                4

      Consolidated Statement of Stockholders' Equity              5

      Consolidated Statements of Cash Flows - Six Months
       Ended June 30, 1995 and 1994                               6

      Notes to Financial Statements                              7-10

Item 2.

      Management's Discussion and Analysis of Financial
       Conditions and Operations                                11-14

Part II:                    OTHER INFORMATION

Items 1-6.                                                        15

Signatures                                                        16

<PAGE 2>

                          DATATREND SERVICES, INC.
                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                   ASSETS              June 30,     December 31,
                                                         1995           1994
                                                      -------------------------- 
                                                      (Unaudited)  
<S>                                                   <C>            <C>
CURRENT ASSETS  
  Cash                                                $   78,655     $    2,015
  Accounts receivable                                  2,610,896      2,073,213
  Inventories                                          6,427,081      3,286,875
  Note receivable                                         50,000
  Other current assets                                    70,358        493,632
                                                      -------------------------
    Total current assets                               9,236,990      5,855,735

PROPERTY AND EQUIPMENT, AT COST
  Furniture, equipment, and leasehold
   improvements                                          206,863        138,373
  Less accumulated depreciation                          (83,472)       (54,072)
                                                      -------------------------
    Property and equipment, net                          123,391         84,301

OTHER ASSETS
  Organizational costs                                    42,382          9,670
  Other                                                    6,873          1,600
                                                      -------------------------
    Total other assets                                    49,255         11,270
                                                      -------------------------
                                                      $9,409,636     $5,951,306
                                                      =========================

                    LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES
  Note payable, bank                                  $3,414,551     $  416,517
  Accounts payable                                     3,294,230      2,727,322
  Accrued expenses and other accrued liabilities         305,647        308,455
  Current portion of capital leases obligations           12,770         12,382
                                                      -------------------------
    Total current liablilities                         7,027,198      3,464,676

OTHER LIABILITIES
  Capital lease obligations, net of
   current portion                                        11,210         17,809
  Note Payable, stockholder                                           1,743,567
                                                      -------------------------
                                                          11,210      1,761,376

STOCKHOLDERS' EQUITY
  Common stock, par value $.01 per share -
   20,000,000 authorized; 4,712,795 shares issued
   and outstanding at June 30, 1995 and 1,000
   shares authorized, issued and outstanding
   at December 31, 1994                                   47,138             10

  Additional paid-in capital                           2,343,606
  Retained earnings(deficit)                             (19,516)       725,244
                                                      -------------------------
    Total stockholders' equity                         2,371,228        725,254
                                                      -------------------------
                                                      $9,409,636     $5,951,306
                                                      =========================
</TABLE>

See Notes to Financial Statements.

<PAGE 3>
                          DATATREND SERVICES, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED JUNE 30,   SIX MONTHS ENDED JUNE 30,
                                              ---------------------------   -------------------------
                                                 1995          1994             1995          1994
                                               ------------------------------------------------------

<S>                                            <C>           <C>            <C>           <C>
SALES                                          $7,846,143    $5,847,984     $13,168,371   $12,101,326

COST OF SALES                                   6,763,493     5,334,076      11,428,241    10,718,630
                                               ------------------------------------------------------
GROSS PROFIT                                    1,082,650       513,908       1,740,130     1,382,696
  Service Revenue                                  41,506                        41,506
                                               ------------------------------------------------------
                                                1,124,156       513,908       1,781,636     1,382,696

OPERATING EXPENSES                              1,069,443       665,786       1,879,404     1,278,602
                                               ------------------------------------------------------
OPERATING INCOME(LOSS)                             54,713      (151,878)        (97,768)      104,094

OTHER INCOME (EXPENSE);
  Rental/Other income                              10,145         6,695          16,336        11,609
  Interest income (expense)                       (54,677)      (74,897)       (102,512)     (183,981)
                                               ------------------------------------------------------
      Total other income (expense)                (44,532)      (68,202)        (86,176)     (172,372)
                                               ------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES           10,181      (220,080)       (183,944)      (68,278)

PROVISION FOR INCOME TAXES                         12,020                        25,440
                                               ------------------------------------------------------
NET INCOME(LOSS) FROM CONTINUING OPERATIONS        (1,839)     (220,080)       (209,384)      (68,278)

INCOME(LOSS) FROM DISCONTINUED OPERATIONS         123,722                        55,963
                                               ------------------------------------------------------
NET INCOME (LOSS)                              $  121,883    $ (220,080)    $  (153,421)  $   (68,278)
                                               ======================================================

Weighted average number of shares               4,712,795                     3,927,496

Earnings (loss) per share:
  Continuing operations                        $    (0.00)                  $     (0.05)
  Discontinued operations                      $     0.03                   $      0.01
                                               ------------------------------------------------------
    Net                                        $     0.03                   $     (0.04)
                                               ======================================================
</TABLE>

See Notes to Financial Statements.

<PAGE 4>
                          DATATREND SERVICES, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
              SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994
                                 (Unaudited)
<TABLE>
<CAPTION>
                                                         1995            1994
                                                     ---------------------------

<S>                                                  <C>            <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                  $   (153,421)  $    (68,278)
  Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating acitvities:
    Depreciation and amortization                          33,137
    Changes in assets and liabilities:
      Accounts receivable                                (587,683)    (1,318,390)
      Inventories                                      (3,140,206)     1,398,670
      Other current assets                                423,274         64,278
      Accounts payable                                    566,908      2,391,797
      Other current liabilities                            (2,808)      (112,025)
                                                     ---------------------------

        Total adjustments                              (2,707,378)     2,424,330
                                                     ---------------------------

          Net cash provided by (used in)
           operating activities                        (2,860,799)     2,356,052

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property and equipment                   (68,490)       (35,582)
  Other assets                                            (41,722)
                                                     ---------------------------

          Net cash used in investing activities          (110,212)       (35,582)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Note payable, Advances                               13,543,467     12,635,133
  Note payable, Payments                              (12,289,000)   (15,653,813)
  Payments on capital lease obligations                    (6,211)
  Shareholder distribution                               (137,000)      (227,920)
  Purchase of subsidiary treasury stock                  (210,000)
  Proceeds from business merger                         2,146,395
                                                     ---------------------------

          Net cash provided by (used in)
           financing activities                         3,047,651     (3,246,600)
                                                     ---------------------------

NET INCREASE (DECREASE) IN CASH                            76,640       (926,130)

CASH, BEGINNING OF PERIOD                                   2,015        689,747
                                                     ---------------------------

CASH, END OF PERIOD                                  $     78,655   $   (236,383)
                                                     ===========================
</TABLE>

See Notes to Financial Statements.

<PAGE 5>
                          DATATREND SERVICES. INC.
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                JUNE 30, 1995
                                 (Unaudited)
<TABLE>
<CAPTION>
                                                                   Additional            Retained
                                                Common Stock         Paid-In   Treasury  Earnings
                                              Shares     Amount      Capital    Stock    (Deficit)       Total
                                              ------------------------------------------------------------------

<S>                                           <C>       <C>        <C>         <C>       <C>          <C>
Balance-December 31, 1994                       1,000   $    10                          $ 725,244    $  725,254

Distribution to S-Corporation Shareholders                                                (137,000)   $ (137,000)

Purchase of Treasury Stock                                                     (210,000)              $ (210,000)

Retirement of Treasury Stock                     (500)       (5)                210,000   (210,000)   $       (5)

Termination of S-Corporation Status                                   244,339             (244,339)   $        0

Business Acquisition                        3,512,295    35,133     2,099,267                         $2,134,400

Additional Shares Issued in Connection
 with Merger                                1,200,000    12,000                                       $   12,000

Net (loss) for the 6 months
 ended June 30, 1995                                                                      (153,421)   $ (153,421)
                                            --------------------------------------------------------------------
Balance-June 30, 1995                       4,712,795   $47,138    $2,343,606  $      0  $ (19,516)   $2,371,228
                                            ====================================================================
</TABLE>

See Notes to Financial Statements

<PAGE 6>
                        BABYSTAR INC. AND SUBSIDIARY 
                        ----------------------------  
                        NOTES TO FINANCIAL STATEMENTS  
  
Note 1 - The Company

In January of 1995, Datatrend, Inc., through a reverse acquisition, was 
merged with Babystar, Inc., a publicly held company (the "Merger"). At that 
time Babystar, Inc. no longer had any operations, having sold its operating 
subsidiary in November 1994. Babystar's net loss for the five months ended 
June 30, 1995 is included in the company's results for the six month's 
ended June 30, 1995.

In connection with the Merger, certain former Datatrend, Inc. shareholders 
received 1,200,000 shares of the Company's common stock, and may receive an 
additional 1,200,000 shares if after tax earnings reach certain levels.

The Company also has 4,265,200 stock warrants and options outstanding, which 
have exercise prices between $.5625 and $4.69 per share, with expiration 
dates between July 1997 and June, 1998. 

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. 

<PAGE 7>

Adjustments Included in Preparing Interim Financial Statements Pursuant to 
- -------------------------------------------------------------------------- 
Item 310(b) Instruction 2 of Regulation S-B
- -------------------------------------------

The financial statements as of June 30, 1995 and for the three and six month 
periods ended June 30, 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 six months ended June 30, 1995 are not 
necessarily indicative of operations for the full year ending December 31, 
1995.

The accompanying financial statements do not contain all of the disclosures 
required by generally accepted accounting principles and should be read in 
conjunction with financial statments and related notes included in the 
Company's annual report on Form 10-KSB for the year ended December 31, 1994. 

Note 3 - Note Payable, Bank

The Company's wholly-owned subsidiary, Datatrend, Inc., has a promissory 
note and Revolving Credit Agreement with a financial institution which 
permits borrowing of up to the lesser of $5,000,000, or 70% of eligible 
accounts receivable plus 40% of eligible inventory.  The promissory note 
bears interest at prime rate plus 1% or LIBOR Rate plus 3.5%, at the 
Company's election and is collateralized by substantially all of the assets 
of the Company.  As a part of the revolving Credit Agreement, the Company 
also has an available "overadvance" facility of $1,000,000 which allows 
short term borrowings of up to $1,000,000 in excess of the result of the 
limit derived from the $5,000,000 cap or the collateral calculation 
referenced above.  This "overadvance" facility must be paid off for a 
consecutive period of five days every thirty days and is therefore only 
intended to finance the Company's short term cash needs.

<PAGE 8>

Note 4 - Lease Commitments

The Company was party to a lease for office premises in New York pursuant to 
a lease expiring in July 1997.  Since the Company no longer anticipated 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.  The Company has negotiated a 
settlement of the entire lease obligation for those premises in 
consideration of a final payment of $7,500 and forfeiture of its security 
deposit and payment of monthly rent thru September 1995.  As a result of 
this transaction, the Company has eliminated the liability for the future 
lease payments which is reflected in the Company's financial statement as 
income from discontinued operations.  The expenses relating to the 
settlement are included as expenses from discontinued operations. 

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: 

<TABLE>
<CAPTION>

      <S>                                <C>
      Year ending December 31, 1995      $161,720
      Year ending December 31, 1996      $ 63,780
</TABLE>

Note 5 - Income Taxes

Effective January 1, 1993, the Company adopted Financial Accounting Standard 
No. 109, "Accounting for Income Taxes."  At December 31, 1994 the Company 
has a tax asset of approximately $1,680,000 attributable to a net operating 
loss carryforward of approximately $4,200,000 of which $2,400,000 will 
expire in 2008 and $1,800,000 in 2009.  The Company has established a full 
valuation reserve against such asset since the likelihood of realization 
cannot be determined.  As a result of more than a 50% change in ownership, 
as defined in section 382 of the Internal Revenue Code, due to the public 
offering of the Company's common stock on June 23, 1993, utilization of the 
net operating loss carryforwards of approximately $1,800,000 relating to the 
periods prior to the public offering to offset future income is limited to 
approximately $200,000 per annum, based on managements estimates. 

<PAGE 9>

Note 6 - 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. 

<PAGE 10>

                        BABYSTAR INC. AND SUBSIDIARY
                        ----------------------------

              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                     CONDITION AND RESULTS OF OPERATIONS


Working Capital and Liquidity
- -----------------------------

Cash provided (used) in operations for the six months ended June 30, 1995 
and 1994 was ($2,707,378) and $2,424,330 respectively. Cash was provided by 
operations in 1994 was primarily from use of vendor credit. The use of cash 
in 1995 was primarily for the purchase of inventory, some of the purchases 
were offset with additional vendor credit. The increase in inventory in 1995 
can be attributed to seasonal sales cycles and availability of inventory for 
purchase. 

Cash provided (used ) by investing activities for the six months ended June 
30, 1995 and 1994 was ($110,212) and ($35,582). A majority of the cash used 
by investing activities in 1995 was related to the costs of the merger that 
were accounted for as other assets and the purchase of fixed assets. 

Cash provided (used) by financing activities for the six months ended June 
30, 1995 and 1994 was $3,047,651 and ($3,246,600) respectively. In the 
period ended June of 1994 the Company used cash from operations and cash on 
hand to pay down asset based lines of credit and shareholder loans, using 
cash in this manner allowed the company to avoid unnecessary interest 
charges on these debts. In the period ended June 30, 1995 cash from 
financing activities increased primarily because of the proceeds from the 
merger and borrowings from the Company's line of credit. 

Based on the increase in equity from the merger, the increased vendor credit 
and the existing line of credit from a bank management feels that the 
company has sufficient capital to meet its short and long term capital 
needs. 

Results of Operations
- --------------------- 

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. For 
financial reporting purposes, the Merger of Babystar, Inc and DTI had been 
treated as if DTI acquired Babystar, Inc. Any references to the Company made 
in this management discussion and in the accompanying financial statements 
shall apply to Datatrend, Inc or DTI. DTI survives as the sole operating 
subsidiary of the company. 

<PAGE 11>

The Company's revenues and expenses from operations (exclusive of losses 
from discontinued operations) for the six months ended June 30, 1995, 
reflect the operations of DTI and Datatrend, Inc.  The revenues and expenses 
for the six months ended June 30, 1994, reflect the business operations of 
the Datatrend, Inc. 

Sales for the quarter ended June 30, 1995 were $7,846,143, up 34.2%, gross 
margins increased from 8.8% to 14.3%, and operating costs are up 60.6% 
compared with the same period one year earlier. 

The Company's current operations have basically been at break even in the 
second quarter of operation.  The combined results of operations for the 
first and second quarters still results in a small loss for the six months 
ended June 30, 1995.  Management attributes this loss to several factors. 
During the first quarter of 1995 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 for the first quarter were adversely affected. The 
Company also believes that the business for the first and second quarters 
involve certain seasonal fluctuations affecting its sales activities. Sales 
and revenues for the second quarter did in fact increase over the first 
quarter. 

Although these sales figures have  increased in the quarter ended June 30, 
1995 as compared to the quarter ended March 31, 1995, management still feels 
that sales during the second quarter have been adversely effected by certain 
changes in the focus of the Company's management and their efforts.  During 
1993 and 1994, the Company relied heavily on sales to mass merchants such as 
Damark International Inc. and Computer City. During 1995, sales to these 
customers have significantly decreased.  Sales to Computer City during 1995 
were negligible as compared to constituting approximately 21% of the 
Company's revenue during 1994.  Sales to Damark International, Inc. for the 
six months ended June 30, 1995 constituted less than 10% of the Company's 
revenue, as compared to 12% in 1994 and 56% in 1993.  These mass merchant 
sales have decreased primarily as a result of market conditions, but also 
have somewhat resulted from the Company's decision to improve it's profit 
margin on sales.  The Company is attempting to increase margins and decrease 
its dependence on major customers by focusing its efforts on developing a 
broader customer base at higher profit margins.  Sales to mass merchants are 
typically at much lower margins and as a result of these lower margins and 
potential product returns, are considered to be far less profitable in 
management's opinion.  During the second quarter of 1995, the Company has 
devoted significant time and effort in attempting to developing certain 
retail computer outlets in furtherance of increasing profit margins as well 
as decreasing dependency on mass merchant sales.  Although the Company's 
initial trial efforts have been somewhat successful, there is no assurance 
that such efforts will derive enough revenues to replace the volume of mass 
merchant sales lost and these efforts have required significant time and 
efforts on the part of certain key sales employees, affecting their ability 
to focus on other aspects of Company sales. 

<PAGE 12>

The Company has also devoted significant efforts during the second quarter 
of 1995 towards the improvement of its product purchasing function, product 
lines and the consistency of its product base.  The Company feels that the 
development of a steady and consistent supply of product from major name 
brand manufacturers could not only improve its purchasing ability, but could 
also increase sales volume, profit margins and possibly increase the 
effectiveness of related advertising and other costs.  There is no assurance 
that these positive effects will in fact result from such efforts.  The 
Company has traditionally purchased a large volume of its product from 
numerous sources, including manufacturers and other re-sellers. A large 
portion of the products purchased consisted of end of life models, excess 
inventories, close outs and other such items. The Company also purchases 
incomplete, defective and returned products which require refurbishing or 
remanufacture in order to be resold. The typical number of product purchases 
is usually a relatively small number of transactions of large quantities of 
product.  The purchases of product on many occasions result from a bid type 
procedure with the highest or most "responsible" bidder being awarded the 
purchase.  The product consists of name brand as well as "no name" computer 
products.  There are numerous other companies in competition for this 
product, both within and without the United States.  Although the Company 
still purchases a large volume from these sources and utilizing these "bid" 
methods and still purchases volumes of "no name" products, the Company, in 
an attempt to try and be more competitive and to provide its sales base with 
a more steady stream of product, has concentrated significant efforts in the 
area of developing asset recovery plans to meet the needs of certain major 
name brand manufacturers of computer equipment.  This asset recovery concept 
primarily focuses on the purchase of products which require refurbishing or 
remanufacture in order to be resold.  The Company has invested significant 
efforts in improving it's ability to refurbish and remanufacture these 
products efficiently.  As a result, the Company has begun to develop certain 
contractual and non-contractual relationships with several large 
manufacturers largely based on its ability to meet these concerns of the 
manufacturers by providing quality warranty services, re-channeling the 
products in a manner not adversely affecting the manufacturers' distributor 
relationships, and generally meeting the challenges of each manufacturer 
with respect to any given product and the related concerns.  These 
contractual relationships do not typically contain any guaranty of the 
amount of product available to the Company, nor do they typically make the 
Company the exclusive channel or purchaser for such product.  These 
contractual arrangements are also typically terminable by a relatively short 
form of notice by the manufacturer.  The Company's ability to maintain and 
further develop these relationships is dependent upon the Company's 
performance, the level of competition, as well as general market conditions 
and the decisions of the manufacturer's themselves to continue to outsource 
these functions.  These relationships are terminable by the manufacturer and 
there is no assurance that these relationships will continue or that the 
Company's asset recovery focus will be successful. 

Discontinued Operations
- -----------------------

During the second quarter of 1995, the Company realized certain income from 
discontinued operations. The income resulted primarily from two unrelated 
items. 

<PAGE 13>

First, the Company was able to negotiate the termination of a long term 
lease on premises leased by the Company in New York.  The Company had 
previously accrued a liability of $72,000 for the balance of the remaining 
payments due under that lease.  The result of the settlement of the lease 
arrangement eliminated this liability and resulted in a net savings of 
approximately $50,000.  This item of income will not re-occur. 

The Company previously sold its wholly-owned subsidiary to Travel Safety 
Children's Products, Inc. As a part of the consideration therefore, the 
Company received a non-negotiable promissory note in the amount of $640,000 
payable over 14 months commencing December 26, 1994.  There was no assurance 
that any sums will be received under the promissory note and due to this 
uncertainty there is a bad-debt reserve against the entire principal amount 
of the promissory note.  The Company received payments under the promissory 
note during the second quarter of 1995 in excess of the corresponding 
reserve for bad debts resulting in a bad debt recovery of approximately 
$50,000.  Travel is currently in default of the terms of the promissory note 
and the Company has notified Travel of such default. There is no assurance 
that any further payments will be received or sums recovered under the 
promissory note, therefore, the balance remains fully reserved.  The note 
receivable reflected on the Company's balance sheet as of June 30, 1995 is 
not related to the sale of  Travel Safety Children's Products, Inc. 

<PAGE 14>

                        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, 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 second 
quarter of 1995. 

Item 5.    Other Information

None.

Item 6.   Exhibits and Reports of Form 8-K

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. 

<PAGE 15>

                        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, Chief Executive Officer
                                       and Chief Financial Officer

<PAGE 16>












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