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
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Commission file number 0-15929
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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
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(Address of Principal Executive Offices)
(617) 691-1200
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(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
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<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
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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>