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 September 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
---------
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
----------------------------------------------
(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 November 14, 2000 was 6,872,331 shares.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
KOALA CORPORATION
- -----------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
------------ ------------
ASSETS
------
Current Assets:
Cash and cash equivalents $ 395,952 $ 173,936
Accounts receivable, trade ( less allowance for doubtful accounts
of $190,445 in 2000 and $131,030 in 1999) 14,285,962 9,234,685
Income tax refund receivable 1,466,980 --
Inventories 9,793,152 5,137,791
Prepaid expenses and other 2,092,223 1,249,384
------------ ------------
Total current assets 28,034,269 15,795,796
------------ ------------
Property and equipment, net 4,231,120 3,213,980
Identifiable intangible assets (net of accumulated amortization
of $2,317,977 in 2000 and $1,371,326 in 1999) 28,558,879 18,709,242
Goodwill (net of accumulated amortization
of $951,097 in 2000 and $381,019 in 1999) 28,198,732 10,839,282
------------ ------------
$ 89,023,000 $ 48,558,300
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts payable $ 5,508,967 $ 2,210,583
Accrued expenses 4,377,097 955,731
------------ ------------
Total current liabilities 9,886,064 3,166,314
------------ ------------
Long Term Liabilities:
Deferred income taxes and other 1,195,210 1,086,270
Credit facility 37,525,000 13,979,000
------------ ------------
Total long term liabilities 38,720,210 15,065,270
------------ ------------
Total liabilities 48,606,274 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 (6,872,331 in 2000 and 6,397,128 in 1999) 687,233 639,713
Note receivable from officer (659,505) (383,505)
Additional paid-in capital 20,256,514 14,596,294
Accumulated other comprehensive income (loss) (86,539) (31,038)
Retained earnings 20,219,023 15,505,252
------------ ------------
Total shareholders' equity 40,416,726 30,326,716
------------ ------------
$ 89,023,000 $ 48,558,300
============ ============
See Notes to Condensed Consolidated Financial Statements
2
KOALA CORPORATION
- -----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Sales $ 16,399,356 $ 10,544,330 $ 45,041,332 $ 26,994,752
Cost of sales 8,277,459 5,243,362 23,218,709 13,246,972
------------ ------------ ------------ ------------
Gross profit 8,121,897 5,300,968 21,822,623 13,747,780
Selling, general and administrative expenses 4,223,872 2,528,448 11,050,422 6,665,545
Amortization of intangibles 605,925 230,335 1,530,028 744,414
------------ ------------ ------------ ------------
Income from operations 3,292,100 2,542,185 9,242,173 6,337,821
Other (income) expense:
Interest expense 841,814 250,280 2,035,386 499,200
Other income and expense (57,545) 2,153 (335,247) 115,475
------------ ------------ ------------ ------------
Income before income taxes 2,507,831 2,289,752 7,542,034 5,723,146
Provision for income taxes 940,437 812,861 2,828,263 2,031,715
------------ ------------ ------------ ------------
Net income $ 1,567,394 $ 1,476,891 $ 4,713,771 $ 3,691,431
============ ============ ============ ============
Net income per share - basic $ 0.23 $ 0.23 $ 0.70 $ 0.59
============ ============ ============ ============
Net income per share - diluted $ 0.22 $ 0.22 $ 0.67 $ 0.57
============ ============ ============ ============
Weighted average shares outstanding - basic 6,843,763 6,345,316 6,735,232 6,212,778
============ ============ ============ ============
Weighted average shares outstanding - diluted 7,107,288 6,635,032 6,988,949 6,465,884
============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements
3
KOALA CORPORATION
- --------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
------------------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $ 4,713,771 $ 3,691,431
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 621,673 382,383
Amortization 1,530,028 744,414
Increase in operating assets:
Accounts receivable, trade (2,496,439) (1,449,832)
Inventories (2,920,506) (924,418)
Prepaid expenses and other (656,405) (583,500)
Increase in operating liabilities:
Accounts payable 190,937 94,144
Accrued expenses and income taxes 571,890 776,571
------------ ------------
Net cash provided by operations 1,554,949 2,731,193
------------ ------------
Cash flows from investing activities:
Capital expenditures (905,896) (820,165)
Acquisitions, net of cash acquired (23,539,481) (23,664,419)
Intangibles and other (335,124) (63,827)
------------ ------------
Net cash used by investing activities (24,780,501) (24,548,411)
------------ ------------
Cash flows from financing activities:
Net proceeds from (payments on) credit facility 23,546,000 13,152,202
Sale of common stock, net of expenses 0 2,676,008
------------ ------------
Net cash provided by financing activities 23,546,000 15,828,210
------------ ------------
Effect of exchange rate changes on cash and cash equivalents (98,432) (178,481)
Net increase (decrease) in cash and cash equivalents 222,016 (6,167,489)
Cash and cash equivalents at beginning of period 173,936 6,493,570
------------ ------------
Cash and cash equivalents at end of period $ 395,952 $ 326,081
============ ============
See Notes to Condensed Consolidated Financial Statements
4
KOALA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 accounting principles generally accepted
in the United States 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 September 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 September 30, 2000 and December 31, 1999, consists
of the following:
September 30, 2000 December 31, 1999
------------------ -----------------
Raw materials and component parts $3,835,170 $ 2,116,864
Work in progress 2,963,859 2,187,413
Finished goods 2,994,123 833,514
---------- -----------
$9,793,152 $ 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" (9.22% at September 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 $37,525,000 as of
September 30, 2000.
5
KOALA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
5. Acquisitions:
Acquisition of Fibar:
Effective August 23, 2000, the Company purchased the assets of Fibar, Inc.
("Fibar"). Fibar is an Armonk, New York based provider of surfacing
solutions for playgrounds. Results of operations of Fibar were included in
the Company's consolidated statement of income beginning on the effective
date of the transaction.
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 425,761 shares of Koala common stock
valued at $5,058,000. In addition, costs of approximately $400,000 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 nine
months ended September 30, 2000 and 1999 assuming consummation of the
purchase of SCS as of January 1, 2000 and 1999 are as follows:
Nine Months ended Nine Months ended
September 30, 2000 September 30, 1999
------------------ ------------------
Sales $ 48,378,101 $ 40,329,728
Net income $ 4,888,590 $ 3,923,324
Net income per share - diluted $ 0.67 $ 0.57
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.
6
KOALA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
6. Business Segments (Continued):
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.
The Company's modular play equipment includes indoor/outdoor play equipment
and playground surfacing materials. 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 and Oregon. The playground surfacing materials are manufactured by
a national network of sub-contractors. 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 September 30, 2000
-------------------------------------------------------------------------------
Convenience Modular Play
and Activity Equipment Total
Products
--------------- -------------- --------------
Sales $ 3,830,188 $ 12,569,168 $ 16,399,356
Operating income 1,030,845 2,261,255 3,292,100
Capital expenditures 44,449 98,728 143,177
Total assets 18,815,756 70,207,244 89,023,000
-------------------------------------------------------------------------------
Three Months Ended September 30, 1999
-------------------------------------------------------------------------------
Convenience Modular Play
and Activity Equipment Total
Products
--------------- -------------- --------------
Sales $ 4,198,132 $ 6,346,198 $ 10,544,330
Operating income 1,249,131 1,293,054 2,542,185
Capital expenditures 126,849 66,170 193,019
Total assets 17,454,506 29,533,044 46,987,550
7
KOALA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
6. Business Segments: (Continued)
- --------------------------------------------------------------------------------
Nine Months Ended September 30, 2000
- --------------------------------------------------------------------------------
Convenience Modular Play
and Activity Equipment Total
Products
--------------- -------------- --------------
Sales $ 12,845,875 $ 32,195,457 $ 45,041,332
Operating income 3,787,244 5,454,929 9,242,173
Capital expenditures 159,716 746,180 905,896
Total assets 18,815,756 70,207,244 89,023,000
- --------------------------------------------------------------------------------
Nine Months Ended September 30, 1999
- --------------------------------------------------------------------------------
Convenience Modular Play
and Activity Equipment Total
Products
--------------- -------------- --------------
Sales $ 11,351,708 $ 15,643,044 $ 26,994,752
Operating income 3,479,838 2,857,983 6,337,821
Capital expenditures 641,276 178,889 820,165
Total assets 17,454,506 29,533,044 46,987,550
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 sales
fluctuations and customer order patterns; 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. See "Risk Factors" in Form 10-KSB for the year
ended December 31, 1999.
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.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Segments (Continued)
The Company's modular play equipment includes indoor/outdoor play equipment and
playground surfacing materials. 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 and Oregon. The playground
surfacing materials are manufactured by a national network of sub-contractors.
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 Acquisitions
Acquisition of Fibar:
On August 23, 2000, the Company purchased the assets of Fibar, Inc. ("Fibar"), a
provider of playground surfacing materials based in Armonk, New York.
Fibar's surfacing systems use engineered wood fibers that creates a soft,
shock-absorbing surface around playground equipment. Fibar's products provide an
economical, high quality solution for schools, parks, and neighborhoods that
need to meet rigorous safety standards. These products are primarily marketed
and sold through manufacturers representatives. The Fibar acquisition further
broadens the Company's products lines and complements the Company's outdoor play
equipment division. Fibar's product line is included in the children's modular
play equipment business segment.
Acquisition of SCS Interactive:
On March 1, 2000, the Company purchased 100% of the common stock of SCS
Interactive, Inc. ("SCS"), 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. The 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 September 30, 2000 compared to Three Months Ended September
30, 1999
Sales increased 56% to $16,399,356 for the three months ended September 30, 2000
compared to $10,544,330 for the three months ended September 30, 1999.
Convenience and activity product segment sales decreased 9% to $3,830,188 for
the three months ended September 30, 2000 compared to $4,198,132 for the three
months ended September 30, 1999. The decrease was primarily due to the Company's
inability to close, produce and ship several large orders received near the end
of the quarter. Modular play equipment segment sales increased 98% to
$12,569,168 for the third quarter of 2000 compared to $6,346,198 for the third
quarter of 1999. The inclusion of SCS and Fibar in this segment contributed to
the increase.
Gross profit for the third quarter of 2000 was $8,121,897 (50% of sales)
compared with $5,300,968 (50% of sales) for the third quarter of 1999. Despite
an increase in the proportional amount of sales from the modular play segment,
which has historically lower margins, the gross profit percentage for the third
quarter 2000 remained unchanged from the gross profit percentage achieved for
third quarter 1999. This was due primarily to the inclusion of Fibar, which
contributed slightly higher margins in the third quarter of 2000 compared to the
other divisions included in the modular play segment.
Selling, general and administrative expenses increased for the third quarter of
2000 to $4,223,872 (26% of sales) from $2,528,448 (24% of sales) for the same
period in 1999. Sales and marketing expenses increased $482,507 to $1,799,315
for the third quarter of 2000 compared to $1,316,808 for the third quarter of
1999. This increase was due primarily to the inclusion of Fibar, SCS
Interactive, and the higher level of sales achieved. General and administrative
expenses increased $1,212,917 to $2,424,557 for the third quarter of 2000
compared to $1,211,640 for the third quarter of 1999. The increase in general
and administrative expense was primarily the result of the inclusion of Fibar
and SCS as well the higher level of sales achieved.
Net income increased 6% in the third quarter of 2000 to $1,567,394 (10% of
sales) from $1,476,891 (14% of sales) for the third quarter of 1999. The
historically lower operating margins on sales from the modular play segment
contributed to the decrease in net income as a percentage of sales. Net income
per share (assuming dilution) for the third quarter of 2000 remained unchanged
compared to the third quarter of 1999. The percentage of net income per share
(assuming dilution) was lower than the percentage increase in net income
primarily due to the increase of the weighted average number of shares
outstanding of 472,256 shares. These additional shares are primarily
attributable to the shares issued for the acquisitions of SCS and Fibar.
Nine Months Ended September 30, 2000 compared to NIne Months Ended September 30,
1999
Sales increased 67% to $45,041,332 for the nine months ended September 30, 2000
compared to $26,994,752 for the nine months ended September 30, 1999.
Convenience and activity product segment sales increased 13% to $12,845,875 for
the nine months ended September 30, 2000 compared to $11,351,708 for the nine
months ended September 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 106% to $32,195,457 for the nine months ended September
30, 2000 compared to $15,643,044 for the nine months ended September 30, 1999.
The inclusion of Fibar and SCS contributed to the increase.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Nine Months Ended September 30, 2000 compared to NIne Months Ended September 30,
1999
Gross profit for the nine months ended September 30, 2000 was $21,822,623 (48%
of sales) compared with $13,747,780 (51% of sales) for the nine months ended
September 30, 1999. The gross profit percentage for the nine months ended
September 30, 2000 decreased from the gross profit percentage achieved for the
nine months ended September 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 nine months ended
September 30, 2000 to $11,050,422 (25% of sales) from $6,665,545 (25% of sales)
for the same period in 1999. Sales and marketing expenses increased $1,659,056
to $5,212,587 for the nine months ended September 30, 2000 compared to
$3,553,531 for the same period in 1999. This increase was due primarily to the
inclusion of Fibar, SCS, Smart Products, and the higher level of sales achieved.
General and administrative expenses increased $2,725,821 to $5,837,835 for the
nine months ended September 30, 2000 compared to $3,112,014 for the same period
in 1999. The increase in general and administrative expense was primarily the
result of the inclusion of Fibar, SCS and Smart Products.
Net income increased 28% for the nine months ended September 30, 2000 to
$4,713,771 (10% of sales) from $3,691,431 (14% of sales) for the nine months
ended September 30, 1999. The historically lower operating margins on sales from
the modular play segment contributed to the decrease in net income as a
percentage of sales. Net income per share (assuming dilution) for the nine
months ended September 30, 2000 increased 18% compared to the nine months ended
September 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
523,065 shares. These additional shares are primarily attributable to the shares
issued for the acquisitions of SCS and Fibar and stock options granted.
Liquidity and Capital Resources
The Company's free cash flow, defined as net income plus non-cash items,
increased by $2,047,244 to $6,865,472 for the nine months ended September 30,
2000 from $4,818,228 for the nine months ended September 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 nine months ended September 30, 2000 and 1999 was
$1,554,949 and $2,731,193, respectively. The decrease in cash provided by
operating activities for the nine months ended September 30, 2000 compared to
the nine months ended September 30, 1999 is due primarily to the integration of
Fibar and SCS into the Company and an increase in prepaid assets, accounts
receivable and inventory, as the Company continued its investment in operating
assets to support actual and anticipated sales growth.
At September 30, 2000 and December 31, 1999, working capital was $18,148,205 and
$12,629,482, and cash balances were $395,952 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 $24,780,501 and $24,548,411 for the nine months ended
September 30, 2000 and 1999, respectively. During the third quarter of 2000, the
Company utilized its credit facility to purchase the assets of Fibar. 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" (9.22% at September 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 $37,525,000 outstanding
under the credit facility as of September 30, 2000.
In October 2000, the Company began negotiating with its primary commercial bank
to increase the secured line of credit to $45 million and bring in a second
participating bank. The Company anticipates closing the transaction in November
2000.
13
PART II - OTHER INFORMATION
Item 1 - 5. None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27.1 September 30, 2000 Financial Data Schedule
(b) Reports on Form 8-K
None
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
November 14, 2000 /s/Mark A. Betker
- --------------------------- --------------------------------------------
Chairman and Chief Executive Officer
(Principal Executive Officer)
November 14, 2000 /s/Jeffrey L. Vigil
- --------------------------- --------------------------------------------
Vice President Finance and Administration
(Principal Financial and Accounting Officer)