1
EXHIBIT 99
IMPORTANT FACTORS REGARDING
FORWARD-LOOKING STATEMENTS
The Company may occasionally make forward-looking statements and estimates, such
as forecasts and projections of the Company's future performance or statements
of management's plans and objectives. These forward-looking statements, made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, may be contained in SEC filings, Annual Reports to
Stockholders, Press Releases and oral statements, among others, made by the
Company. Actual results could differ materially from those in such
forward-looking statements. Therefore, no assurances can be given that the
results in such forward-looking statements will be achieved. Important factors
that could cause the Company's actual results to differ from those contained in
such forward-looking statements include, among others, the factors mentioned
below.
NEW PRODUCT INTRODUCTIONS
The growth of the Company has been, and will continue to be, dependent upon its
ability to continue to introduce new products. There can be no assurance that
the Company will continue to maintain its present rate of growth, that it will
continue to generate new product ideas, or that new products will be
successfully introduced. In 1997, the Company introduced to the market its
comforTemp infra-red instant underarm thermometer. There can be no assurance
that such product will be well received by the market or generate substantial
sales.
RELIANCE ON LICENSED PRODUCTS
A substantial factor contributing to the growth in the Company's net sales in
the past few years has been its sale of products featuring cartoon characters
licensed from other parties, including the use of Winnie the Pooh characters
licensed from The Walt Disney Company, and Sesame Street characters licensed
from The Children's Television Workshop. These licenses have fixed terms and
limit the type of products that may be sold under the license. One major
license expires at the end of 1998. The Company's management is in the process
of negotiating the renewal of such license. There can be no assurance that such
license or any of the Company's other licenses will be renewed or will be
renewed on terms favorable to the Company, or that, if renewed, they will result
in sales increases in future periods.
2
DEPENDENCE ON CONSUMER PREFERENCES
The continued success of the Company's business depends in part on the continued
consumer demand for its juvenile products and the Company's ability to
anticipate, gauge, and respond to changing consumer demands for juvenile
products in a timely manner. Changes in consumer demand due to
frequently-changing consumer tastes, general economic decline, or to less
favorable demographic trends related to childbirth, among other factors, could
have a material adverse effect on the Company's business. Moreover, the Company
could be materially adversely affected by conditions in the retail industry in
general, including consolidation and the resulting decline in the number of
retailers, and other cyclical economic factors.
DEPENDENCE UPON MAJOR CUSTOMERS
The three largest customers of the Company, Walmart, Toys "R" Us, and Target
accounted for approximately 52% of net sales during 1997. A significant
reduction of purchases by any one of these customers could have a material
adverse effect on the Company's business.
COMPETITION
Competition is intense in the juvenile product markets in which the Company
sells its products. The Company competes with a large number of other companies
both domestic and foreign, some of which have diversified product lines,
well-known brands and financial, distribution and marketing resources
substantially greater than those of the Company. There can be no assurance that
the Company will be able to continue to compete effectively in the juvenile
products market.
RELIANCE ON CONTRACT AND FOREIGN MANUFACTURERS
The Company does not own or operate its own manufacturing facilities. A number
of manufacturers located in the Far East, primarily in China, supply products
and product components to the Company. A substantial portion of all of its
products sold in 1997 were manufactured in the Far East. The Company is subject
to the usual risks of a business involving foreign suppliers, such as currency
fluctuations, government regulation of fund transfers, export and import duties,
trade limitations imposed by the United States or foreign governments, and
political and labor instability. In particular there are a number of
trade-related and other issues creating significant friction between the
governments of the United States and China, and the imposition of punitive
import duties on certain categories of Chinese products has been threatened in
the past and may be implemented in the future. Although the Company continues to
evaluate alternative sources of supply outside of China, there can be no
assurance that the Company will be able to
- 2 -
3
develop alternative sources of supply in a timely and cost-effective manner.
The Company has no long-term manufacturing agreements with its suppliers and
competes with other juvenile product companies, including companies that are
much larger than the Company, for access to production facilities. In December,
1996, the Company entered into an agreement with Exergen Corporation to jointly
design and develop the Company's ComforTemp thermometer. The Company is
dependent on Exergen for Exergen's technology and proprietary components. There
can be no assurance that the Company will continue to obtain such proprietary
components from Exergen.
The Company, because of its substantial reliance on suppliers in foreign
countries, is required to order products further in advance of customer orders
than would generally be the case if such products were produced in the United
States. The risk of ordering products in this manner is greater during the
initial introduction of new products since it is difficult to determine the
demand for such products.
COST AND AVAILABILITY OF CERTAIN MATERIALS
Plastic and paperboard are significant cost components of the Company's products
and packaging. Because the primary resource used in manufacturing plastic is
petroleum, the cost and availability of plastic for use in the Company's
products varies to a great extent with the price of petroleum. The inability of
the Company's suppliers to acquire sufficient plastic or paperboard at
reasonable prices would adversely affect the Company's ability to maintain its
profit margins in the short term.
INTERNATIONAL SALES
The Company's international sales in 1997 were approximately $16.2 million and
accounted for approximately 13.5% of the Company's total net sales in 1997.
There can be no assurance that the Company will be successful in expanding its
international sales operations.
PRODUCT LIABILITY RISKS
The Company's juvenile products are used for and by small children and infants.
The Company carries product liability insurance in amounts which management
deems adequate to cover risks associated with such use; however, there can be no
assurance that existing or future insurance coverage will be sufficient to cover
all product liability risks.
- 3 -
4
GOVERNMENT REGULATIONS
The Company's products are subject to the provisions of the Federal Consumer
Safety Act, the Federal Hazardous Substances Act, the Federal Flammable Fabrics
Act, and the Child Safety Protection Act (the "Acts") and the regulations
promulgated thereunder. The Acts authorize the Consumer Product Safety
Commission (the "CPSC") to protect the public from products which present a
substantial risk of injury. The CPSC can require the repurchase or recall by the
manufacturer of articles which are found to be defective and impose fines or
penalties on the manufacturer. Similar laws exist in some states and cities and
in other countries in which the Company markets its products. Any recall of its
products could have a material adverse effect on the Company, depending on the
particular product.
- 4 -