U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(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, 2000
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _____________ to _____________
Commission file number 0-22464
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KOALA CORPORATION
--------------------------
(Exact name of small business issuer
as specified in its charter)
Colorado 84-1238908
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11600 E. 53rd Avenue, Unit D, Denver, CO 80239
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(Address of principal executive offices)
(303) 574-1000
--------------
(Issuer's telephone number)
--------------------------------------------
(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......
The number of shares outstanding of the issuer's common stock, $.10 par value,
as of August 14, 2000 was 6,822,886 shares.
1
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
KOALA CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
---- ----
(unaudited)
ASSETS
------
Current Assets
Cash and cash equivalents $ 422,870 $ 173,936
Accounts receivable, trade ( less allowance for doubtful accounts
of $146,078 in 2000 and $131,030 in 1999) 10,001,351 9,234,685
Income tax refund receivable 1,611,960 --
Inventories 8,421,510 5,137,791
Prepaid expenses and other 2,740,179 1,249,384
------------ ------------
Total current assets 23,197,870 15,795,796
------------ ------------
Property and equipment, net 4,179,897 3,213,980
Identifiable intangible assets (net of accumulated amortization
of $1,980,679 in 2000 and $1,371,326 in 1999) 28,978,079 18,709,242
Goodwill (net of accumulated amortization
of $697,477 in 2000 and $381,019 in 1999) 22,810,654 10,839,282
------------ ------------
$ 79,166,500 $ 48,558,300
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts payable $ 3,762,369 $ 2,210,583
Accrued expenses 2,844,600 955,731
------------ ------------
Total current liabilities 6,606,969 3,166,314
------------ ------------
Long Term Liabilities:
Deferred income taxes and other 1,141,587 1,086,270
Credit facility 33,238,000 13,979,000
------------ ------------
Total long term liabilities 34,379,587 15,065,270
------------ ------------
Total liabilities 40,986,556 18,231,584
------------ ------------
Commitments and contingencies
Shareholders' Equity:
Preferred stock, no par value, 1,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.10 par value, 10,000,000 shares authorized;
issued and outstanding (6,822,886 in 2000 and 6,397,128 in 1999) 682,289 639,713
Note receivable from officer (648,505) (383,505)
Additional paid-in capital 19,611,718 14,596,294
Accumulated other comprehensive income (loss) (116,927) (31,038)
Retained earnings 18,651,369 15,505,252
------------ ------------
Total shareholders' equity 38,179,944 30,326,716
------------ ------------
$ 79,166,500 $ 48,558,300
============ ============
See Notes to Condensed Consolidated Financial Statements
2
KOALA CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Sales $17,162,269 $9,150,995 $28,641,976 $16,450,422
Cost of sales 9,166,464 4,397,635 14,941,250 8,003,610
----------- ---------- ----------- -----------
Gross profit 7,995,805 4,753,360 13,700,726 8,446,812
Selling, general and administrative expenses 3,854,622 2,315,261 6,826,550 4,137,097
Amortization of intangibles 572,492 255,549 924,103 514,079
----------- ---------- ----------- -----------
Income from operations 3,568,691 2,182,550 5,950,073 3,795,636
Other (income) expense:
Interest expense 762,349 245,920 1,193,572 354,479
Other income and expense (206,842) (25,949) (277,702) 7,763
----------- ---------- ----------- -----------
Income before income taxes 3,013,184 1,962,579 5,034,203 3,433,394
Provision for income taxes 1,129,944 696,716 1,887,826 1,218,854
----------- ---------- ----------- -----------
Net income $1,883,240 $1,265,863 $3,146,377 $2,214,540
=========== ========== =========== ===========
Net income per share - basic $0.28 $0.20 $0.47 $0.36
=========== ========== =========== ===========
Net income per share - diluted $0.27 $0.19 $0.45 $0.35
=========== ========== =========== ===========
Weighted average shares outstanding - basic 6,822,886 6,310,298 6,680,967 6,146,510
=========== ========== =========== ===========
Weighted average shares outstanding - diluted 7,099,309 6,569,316 6,936,796 6,381,312
=========== ========== =========== ===========
See Notes to Condensed Consolidated Financial Statements
3
KOALA CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended June 30,
2000 1999
---- ----
Cash flows from operating activities:
Net income $3,146,377 $2,214,540
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 431,910 248,407
Amortization 924,103 514,079
Increase in operating assets:
Accounts receivable, trade (410,967) (490,792)
Inventories (1,445,310) (530,799)
Prepaid expenses and other (1,603,688) (591,512)
Increase in operating liabilities:
Accounts payable 721,470 (74,453)
Accrued expenses and income taxes (1,698,881) 391,308
----------- -----------
Net cash provided by operations 65,014 1,680,778
----------- -----------
Cash flows from investing activities:
Capital expenditures (762,719) (627,146)
Acquisitions, net of cash acquired (17,862,997) (21,265,992)
Intangibles and other (363,475) (14,364)
----------- -----------
Net cash used by investing activities (18,989,191) (21,907,502)
----------- -----------
Cash flows from financing activities:
Sale of common stock, net of expenses 0 2,676,008
Net proceeds from (payments on) credit facility 19,259,000 11,328,202
----------- -----------
Net cash provided by financing activities 19,259,000 14,004,210
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (85,889) (187,973)
Net increase (decrease) in cash and cash equivalents 248,934 (6,410,487)
Cash and cash equivalents at beginning of period 173,936 6,493,570
----------- -----------
Cash and cash equivalents at end of period $422,870 $83,083
=========== ===========
See Notes to Condensed Consolidated Financial Statements
4
KOALA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
1. Unaudited information:
The accompanying financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all of the
disclosures normally required by generally accepted accounting principles
or those normally made in the Company's annual Form 10-KSB filing.
Accordingly, the reader of this Form 10-Q should refer to the Company's
10-KSB for the year ended December 31, 1999 for further information.
The quarterly financial information has been prepared in accordance with
the Company's customary accounting practices and has not been audited. In
the opinion of management, the information presented reflects all
adjustments necessary for a fair statement of interim results. All such
adjustments are of a normal and recurring nature. The results of operations
for the interim period ended June 30, 2000 are not necessarily indicative
of the results for a full year.
2. Revenue Recognition
The Company recognizes revenue at the time its products are shipped, or by
the percentage of completion method of accounting for those projects where
the build to install timeline is of longer duration.
3. Inventory:
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventory as of June 30, 2000 and December 31, 1999, consists of
the following:
June 30, 2000 December 31, 1999
------------- -----------------
Raw materials and component parts $3,882,382 $2,116,864
Work in progress 2,358,399 2,187,413
Finished goods 2,180,729 833,514
---------- ----------
$8,421,510 $5,137,791
========== ==========
4. Credit Facility:
On March 1, 2000, the Company increased its secured line of credit to $40.0
million. The line of credit is secured by substantially all of the assets
of the Company. The line of credit may be used for short-term working
capital needs and future acquisitions. There are no compensating balance
requirements and the credit facility requires compliance with financial
loan covenants related to debt levels compared to annualized cash flows
from operations. The credit facility terminates and is payable in full on
March 1, 2003. Interest payments are required at least every three months
at a fluctuating rate per annum equal to the applicable "Reserve Adjusted
LIBOR Rate" (9.25% at June 30, 2000). A commitment fee in the amount of
.25% is payable quarterly in arrears based on the average daily unused
portion of the line. There was a balance outstanding of $33,238,000 as of
June 30, 2000.
5
KOALA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
5. Acquisitions:
Acquisition of SCS Interactive:
Effective March 1, 2000, the Company purchased 100% of the common stock of
SCS Interactive, Inc., ("SCS"), a provider of interactive water play
products located in Tillamook, Oregon. Results of operations of SCS were
included in the Company's consolidated statement of income beginning on the
effective date of the transaction.
The purchase price consisted of cash and Koala Corporation common stock. A
cash payment of $18,052,903 was made at closing, which was based on the
cash component of the purchase price less holdbacks equal to $2,181,097.
The cash component was financed primarily from an advance on the Company's
line of credit in the amount of approximately $18,000,000. The stock
component resulted in the issuance of 425,758 shares of Koala common stock.
In addition, costs of approximately $600,000 were incurred in connection
with this acquisition. Initial consideration and acquisition costs were
allocated to tangible assets based on relative fair value, with the
remaining balance allocated to patents, other intellectual property and
goodwill.
The pro forma unaudited results of operations of the Company for the six
months ended June 30, 2000 and 1999 assuming consummation of the purchase
of SCS as of January 1, 2000 and 1999 are as follows:
Six Months ended Six Months ended
June 30, 2000 June 30, 1999
------------- -------------
Sales $31,978,745 $26,604,534
Net income $ 3,271,022 $ 2,468,991
Net income per share-diluted $ 0.45 $ 0.36
6. Business Segments:
The Company operates two business segments: (1) Family Convenience and
Children's Activity Products, and (2) Children's Modular Play Equipment.
The Company's reportable segments are strategic business units that offer
different products. They are managed separately based on the fundamental
differences in the operations.
The Company's convenience and activity products include the flagship
product, the baby changing station ("BCS"). Other significant products in
this segment are the sanitary paper liners for the BCS, the child
protection seat, the infant seat kradle, the high chair, safety straps for
shopping carts and activity products. All of these products are
manufactured by sub-contractors, except for Superior Foam which is
manufactured by the Company in Texas. These products are sold direct and
through distribution.
6
KOALA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
6. Business Segments: (Continued)
The Company's modular play equipment includes both indoor and outdoor
equipment. The indoor play equipment is custom designed for the customer. A
catalog is used to promote and advertise the outdoor play equipment,
however, custom modifications are often made to accommodate the customers'
needs and desires. These products are manufactured by the Company at its
facilities located in British Columbia, Florida, Oregon and New York. These
products are sold direct and through manufacturers'
representatives/dealers.
The Company evaluates the performance of its segments based primarily on
operating profit before acquisition intangible amortization, corporate
expenses and interest income and expense. The Company allocates corporate
expenses to individual segments based on segment sales. Corporate expenses
are primarily labor costs of executive management and shareholders'
relations costs. The following table presents sales and other financial
information by business segment:
-------------------------------------------------------------------
Three Months Ended June 30, 2000
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Convenience Modular
and Activity Play Total
Products Equipment
---------------------------------------------
Sales $4,763,834 $12,398,435 $17,162,269
Operating income 1,454,202 2,114,489 3,568,691
Capital expenditures 72,883 581,119 654,002
Total assets 17,893,428 61,273,072 79,166,500
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Three Months Ended June 30, 1999
-------------------------------------------------------------------
Convenience Modular
and Activity Play Total
Products Equipment
---------------------------------------------
Sales $3,975,144 $5,175,851 $9,150,995
Operating income 1,233,349 949,201 2,182,550
Capital expenditures 98,391 83,971 182,362
Total assets 15,492,591 28,630,009 44,122,600
7
KOALA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
6. Business Segments: (Continued)
--------------------------------------------------------------------
Six Months Ended June 30, 2000
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Convenience Modular
and Activity Play Total
Products Equipment
---------------------------------------------
Sales $ 9,015,687 $19,626,289 $28,641,976
Operating income 2,756,398 3,193,675 5,950,073
Capital expenditures 115,267 647,452 762,719
Total assets 17,893,428 61,273,072 79,166,500
--------------------------------------------------------------------
Six Months Ended June 30, 1999
--------------------------------------------------------------------
Convenience Modular
and Activity Play Total
Products Equipment
---------------------------------------------
Sales $ 7,153,576 $9,296,846 $16,450,422
Operating income 2,210,707 1,584,929 3,795,636
Capital expenditures 514,427 112,719 627,146
Total assets 15,492,591 28,630,009 44,122,600
8
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements that describe the Company's
business and the expectations of the Company and management. All
statements, other than statements of historical facts, included in this
report that address activities, events or developments that the Company
expects, believes, intends or anticipates will or may occur in the future,
are forward-looking statements. Forward-looking statements are inherently
subject to risks and uncertainties, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, could differ materially from those
set forth in or contemplated by the forward-looking statements herein.
These risks and uncertainties include, but are not limited to, the
Company's reliance on the revenues from a major product, the Koala Bear
Kare(R) Baby Changing Station; the uncertainties associated with the
introduction of new products; management of growth, including the ability
to attract and retain qualified employees; the ability to integrate
acquisitions made by the Company and the costs associated with such
acquisitions; dependence on Mark Betker, its chief executive officer;
substantial competition from larger companies with greater financial and
other resources than the Company; its dependence on suppliers for
manufacture of some of its products; currency fluctuations and other risks
associated with foreign sales and foreign operations; quarterly
fluctuations in revenues, income and overhead expense; government
regulations including those promulgated by the consumer products safety
commission; and potential product liability risk associated with its
existing and future products.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Koala Corporation is a leading designer, producer and worldwide marketer of
innovative commercial products, systems and solutions that create
attractive family-friendly environments for businesses and other public
venues. The Company produces family convenience products, children's
activity products and children's modular play equipment. The Koala Bear
Kare Baby Changing Station, the Company's flagship product, has been
installed in thousands of public restrooms worldwide. The Baby Changing
Station has provided the foundation for the Company's growth and brand name
recognition.
The Company markets its products, systems and custom solutions to a wide
range of businesses and public facilities that serve customers and visitors
who bring children to their establishments. Koala markets its products
through an integrated program of direct sales and distribution through a
network of independent manufacturer's sales representatives and dealers.
Since 1995, the Company has increased its sales and marketing efforts
through the addition of manufacturer's sales representatives, dealers and
Company sales representatives.
Business Segments
The Company's sales are derived from two business segments: (1) Family
Convenience and Children's Activity Products, and (2) Children's Modular
Play Equipment.
The Company's convenience and activity products include the flagship
product, the baby changing station ("BCS"). Other significant products in
this segment are the sanitary paper liners for the BCS, the child
protection seat, the infant seat kradle, the high chair, safety straps for
shopping carts and activity products. These products are sold direct and
through distribution. The Company recognizes sales of products from this
business segment at the time the products are shipped, except for its
Superior Foam division, which utilizes percentage of completion.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Segments (continued)
The Company's modular play equipment includes both indoor and outdoor
equipment. The indoor play equipment is custom designed for the customer. A
catalog is used to promote and advertise the outdoor play equipment,
however, custom modifications are often made to accommodate the customers
needs and desires. These products are manufactured by the Company at its
facilities located in British Columbia, Florida, Oregon and New York. These
products are sold direct and through manufacturers'
representatives/dealers. The Company recognizes revenue at the time its
products are shipped, or by the percentage of completion method of
accounting for those projects where the build to install timeline is of
longer duration.
The Company's quarterly revenues and net income are subject to fluctuation
based on customer order patterns and Company shipping activity. Because of
these fluctuations, comparisons of operating results from quarter to
quarter for the current year or for comparable quarters of the prior year
may be difficult. Except as set forth below, these fluctuations are not
expected to be significant when considered on an annual basis.
Recent Acquisition
Acquisition of SCS Interactive:
On March 1, 2000, the Company purchased 100% of the common stock of SCS
Interactive, Inc., a provider of interactive and modular water play
products located in Tillamook, Oregon for cash and stock consideration of
$25.7 million.
SCS products are primarily marketed and sold to amusement and water parks.
The SCS acquisition further broadens the Company's product lines and
complements the Company's 1998 and 1999 acquisitions of Park Structures and
Superior Foam. The acquisition also affords the Company an opportunity to
sell its convenience and children's activity products into new markets. SCS
product line is included in the children's modular play equipment business
segment.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended June 30, 2000 compared to Three Months Ended
June 30, 1999
Sales increased 88% to $17,162,269 for the three months ended June 30, 2000
compared to $9,150,995 for the three months ended June 30, 1999.
Convenience and activity product segment sales increased 20% to $4,763,834
for the three months ended June 30, 2000 compared to $3,975,144 for the
three months ended June 30, 1999. Sales by Smart Products and Superior Foam
were included in this segment as of September 1, 1999, and March 1, 1999,
respectively, the effective date of each purchase. Modular play equipment
segment sales increased 140% to $12,398,435 for the second quarter of 2000
compared to $5,175,851 for the second quarter of 1999. The inclusion of SCS
Interactive for the entire quarter contributed to the increase.
Gross profit for the second quarter of 2000 was $7,995,805 (47% of sales)
compared with $4,753,360 (52% of sales) for the second quarter of 1999. The
gross profit percentage for the first quarter 2000 decreased from the gross
profit percentage achieved for first quarter 1999 primarily because of the
increase in the proportional mix of modular play equipment sales, which
historically have lower margins than the convenience and activity products.
Selling, general and administrative expenses increased for the second
quarter of 2000 to $3,854,622 (22% of sales) from $2,315,261 (25% of sales)
for the same period in 1999. Sales and marketing expenses increased
$585,487 to $1,765,934 for the second quarter of 2000 compared to
$1,180,447 for the second quarter of 1999. This increase was due primarily
to the inclusion of SCS Interactive, Smart Products, and the higher level
of sales achieved. General and administrative expenses increased $953,874
to $2,088,688 for the second quarter of 2000 compared to $1,134,814 for the
second quarter of 1999. The increase in general and administrative expense
was primarily the result of the inclusion of SCS Interactive and Smart
Products.
Net income for the second quarter of 2000 was $1,883,240 (11% of sales)
compared with $1,265,863 (14% of sales) for the second quarter of 1999.
This represents a 49% increase in net income. The historically lower
margins from SCS Interactive, Park Structures and Delta's sales contributed
to the decrease in net income as a percentage of sales. Net income per
share (assuming dilution) for the second quarter of 2000 increased 42%
compared to the second quarter of 1999. The percentage increase in net
income per share (assuming dilution) was lower than the percentage increase
in net income primarily as a result of an increase in the weighted average
number of shares outstanding of 529,993 shares.
Six Months Ended June 30, 2000 compared to Six Months Ended June 30, 1999
Sales increased 74% to $28,641,976 for the six months ended June 30, 2000
compared to $16,450,422 for the six months ended June 30, 1999. Convenience
and activity product segment sales increased 26% to $9,015,687 for the six
months ended June 30, 2000 compared to $7,153,576 for the six months ended
June 30, 1999. Sales by Smart Products and Superior Foam were included in
this segment as of September 1, 1999, and March 1, 1999, respectively, the
effective date of each purchase. Modular play equipment segment sales
increased 111% to $19,626,289 for the six months ended June 30, 2000
compared to $9,296,846 for the six months ended June 30, 1999. The
inclusion of SCS Interactive since March 1, 2000 contributed to the
increase.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Six Months Ended June 30, 2000 compared to Six Months Ended June 30, 1999
Gross profit for the six months ended June 30, 2000 was $13,700,726 (48% of
sales) compared with $8,446,812 (51% of sales) for the six months ended
June 30, 1999. The gross profit percentage for the six months ended June
30, 2000 decreased from the gross profit percentage achieved for the six
months ended June 30, 1999 primarily because of the increase in the
proportional mix of modular play equipment sales, which historically have
lower margins than the convenience and activity products.
Selling, general and administrative expenses increased for the six months
ended June 30, 2000 to $6,826,550 (24% of sales) from $4,137,097 (25% of
sales) for the same period in 1999. Sales and marketing expenses increased
$1,176,549 to $3,413,272 for the six months ended June 30, 2000 compared to
$2,236,723 for the same period in 1999. This increase was due primarily to
the inclusion of SCS Interactive, Smart Products, and the higher level of
sales achieved. General and administrative expenses increased $1,512,904 to
$3,413,278 for the six months ended June 30, 2000 compared to $1,900,374
for the same period in 1999. The increase in general and administrative
expense was primarily the result of the inclusion of SCS Interactive and
Smart Products.
Net income for the six months ended June 30, 2000 was $3,146,377 (11% of
sales) compared with $2,214,540 (14% of sales) for the six months ended
June 30, 1999. This represents a 42% increase in net income. The
historically lower margins from SCS Interactive, Park Structures and
Delta's sales contributed to the decrease in net income as a percentage of
sales. Net income per share (assuming dilution) for the six months ended
June 30, 2000 increased 29% compared to the six months ended June 30, 1999.
The percentage increase in net income per share (assuming dilution) was
lower than the percentage increase in net income primarily as a result of
an increase in the weighted average number of shares outstanding of 555,484
shares.
Liquidity and Capital Resources
The Company's free cash flow, defined as net income plus non-cash items,
increased by $1,525,364 to $4,502,390 for the six months ended June 30,
2000 from $2,977,026 for the six months ended June 30, 1999. The Company
finances its business activities primarily from cash provided by operating
activities and from borrowings on its credit facility. Cash provided by
operating activities for the six months ended June 30, 2000 and 1999 was
$65,014 and $1,680,778, respectively. The decrease in cash provided by
operating activities for the six months ended June 30, 2000 compared to the
six months ended June 30, 1999 is due primarily to the integration of SCS
Interactive into Koala Corporation and a combination of an increase in
prepaid assets and inventory, and a decrease in accrued liabilities. The
decrease in accrued liabilities was the result of a combination of the
payment of two estimated tax installlments (April and June) totalling
$1,390,000 and the recognition of unearned revenue for several large SCS
Interactive jobs during the quarter. The Company continued its investment
in inventory and prepaid advertising to support the sales growth. The
Company historically incurs significant expenditures for prepaid
advertising in the first half of the calendar year. These expenditures are
for catalogs, brochures, other print material, trade shows and media
advertising that will be utilized throughout the year and charged to
expense by year end.
At June 30, 2000 and December 31, 1999, working capital was $16,590,901 and
$12,629,482, and cash balances were $422,870 and $173,936, respectively.
The low cash balances are due to the Company's practice of applying all
excess cash against the line of credit to minimize interest expense payable
on line of credit balances.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources (Continued)
The Company has used its operating cash flow and its credit facility
primarily to expand sales and marketing activities, for acquisition and
development of new products, for capital expenditures and for working
capital. Net cash used by investing activities was $18,989,191 and
$21,907,502 for the six months ended June 30, 2000 and 1999, respectively.
During the first quarter of 2000, the Company utilized all of its cash on
hand and the credit facility to purchase the stock of SCS Interactive. In
1999, the Company utilized all of its cash on hand and the credit facility
to pay the note payable related to the purchase of the children's modular
play equipment assets, the commercial foam product assets, and the
additional convenience assets. The Company also invested approximately
$400,000 in the first quarter of 1999 for the data and telecommunications
infrastructure utilized in the new KoalaTel tele-sales facility.
The Company obtained a $40.0 million secured line of credit on March 1,
2000. The line of credit is secured by substantially all of the assets of
the Company. The line of credit may be used for short-term working capital
needs and future acquisitions. There are no compensating balance
requirements and the credit facility requires compliance with financial
loan covenants related to debt levels compared to annualized cash flows
from operations. The credit facility terminates and is payable in full on
March 1, 2003. Interest payments are required at least every three months
at a fluctuating rate per annum equal to the applicable "Reserve Adjusted
LIBOR Rate" (9.25% at June 30, 2000). A commitment fee in the amount of
.25% is payable quarterly in arrears based on the average daily unused
portion of the line. There was $33,238,000 outstanding under the credit
facility as of June 30, 2000.
PART II - OTHER INFORMATION
Item 1 - 3. None
Item 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------------------
On April 26, 2000, the Company held its Annual Meeting of
Shareholders. At such meeting, The Company's shareholders ( i )
elected four directors to serve until the Company's next annual
meeting; ( ii ) approved the appointment of Ernst & Young LLP to
serve as the Company's independent auditors for the year ended
December 31, 2000. The number of votes cast in matters is set
forth below:
1. Election of Directors
VOTES AGAINST BROKER
NAME VOTES FOR OR WITHHELD ABSTENTIONS NON-VOTES
----------------------------------------------------------------------------
Mark Betker 4,558,619 8,393 0 0
Michael C. Franson 4,558,619 8,393 0 0
John T.
Pfannenstein 4,558,619 8,393 0 0
Ellen S.
Robinson 4,558,619 8,393 0 0
13
PART II - OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security Holders (Continued)
------------------------------------------------------------------
2. Approval of Appointment of Ernst & Young LLP
Votes For Votes Against Abstentions Broker Non-Votes
or Withheld
--------- ------------- ----------- ----------------
4,554,136 6,529 6,347 0
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits
Exhibit 27.1 June 30, 2000 Financial Data Schedule.
(b) Reports on Form 8-K
On May 15, 2000, the registrant filed a Form 8-K/A amending a
Form 8-K dated March 1, 2000. The Form 8-K/A reported items 2
and 7.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
KOALA CORPORATION
August 14, 2000 /s/Mark A. Betker
- --------------- -----------------
Chairman and Chief Executive Officer
(Principal Executive Officer)
August 14, 2000 /s/Jeffrey L. Vigil
- --------------- -------------------
Vice President Finance and Administration
(Principal Financial and Accounting Officer)
14