U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(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, 1996
[ ] 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 East 53rd Avenue, Building D, Denver, Colorado 80239
----------------------------------------------
(Address of principal executive offices)
(303) 574-1000
--------------------------
(Issuer's telephone number)
4390 McMenemy Road, Suite B, St. Paul, MN 55127
----------------------------------------------------
(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 latest practicable date: 2,430,543 shares of common
stock
Transitional Small Business Disclosure Format (Check one):
Yes..... No...X...
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KOALA CORPORATION
- --------------------------------------------------------------------------------
BALANCE SHEET
SEPTEMBER 30, DECEMBER 31,
1996 1995
---------- ----------
ASSETS (Unaudited)
CURRENT ASSETS
Cash $2,543,147 $2,994,130
Accounts receivable, net of allowance
for doubtful accounts 1,683,975 1,138,709
Inventory 999,384 363,270
Prepaid expenses 364,539 46,518
Deferred income taxes 6,070 6,070
---------- ----------
Total current assets 5,597,115 4,548,697
---------- ----------
EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 674,613 445,469
---------- ----------
OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION
Acquisition intangibles and patents,
net of accumulated amortization 3,679,071 3,252,643
Deposits 13,395 3,500
---------- ----------
Total other assets 3,692,466 3,256,143
---------- ----------
$9,964,194 $8,250,309
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 150,568 $ 96,019
Accrued expenses 11,127 35,938
Accrued income taxes 169,430 --
---------- ----------
Total current liabilities 331,125 131,957
---------- ----------
LONG-TERM LIABILITIES -- --
---------- ----------
DEFERRED INCOME TAXES 256,222 256,222
---------- ----------
SHAREHOLDERS' EQUITY
Common stock, $.10 par value, authorized
10,000,000 shares; issued and outstanding
2,430,543 & 2,399,312 shares, respectively 243,054 239,931
Additional paid in capital 4,636,056 4,639,179
Retained earnings 4,497,737 2,983,020
---------- ----------
Total shareholders' equity 9,376,847 7,862,130
---------- ----------
$9,964,194 $8,250,309
========== ==========
See notes to financial statements.
<TABLE>
<CAPTION>
KOALA CORPORATION
- -------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 2,433,048 $ 1,815,939 $ 6,739,073 $ 4,780,956
Cost of sales 894,253 730,685 2,519,194 1,848,792
----------- ----------- ----------- -----------
Gross profit 1,538,795 1,085,254 4,219,879 2,932,164
----------- ----------- ----------- -----------
Selling, general and administrative expenses 681,308 416,251 1,871,272 1,103,843
----------- ----------- ----------- -----------
OPERATING INCOME 857,487 669,003 2,348,607 1,828,321
----------- ----------- ----------- -----------
Other (income) expenses (47,014) (27,472) (113,973) (76,079)
Amortization of acquisition intangibles 27,900 21,486 77,199 64,458
----------- ----------- ----------- -----------
Income before provision
for income taxes 876,601 674,989 2,385,381 1,839,942
Provision for income taxes 319,959 238,311 870,664 669,344
----------- ----------- ----------- -----------
NET INCOME $ 556,642 $ 436,678 $ 1,514,717 $ 1,170,598
=========== =========== =========== ===========
NET INCOME PER SHARE $ 0.22 $ 0.18 $ 0.59 $ 0.48
=========== =========== =========== ===========
Weighted average shares outstanding 2,571,490 2,414,105 2,569,408 2,414,004
=========== =========== =========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
KOALA CORPORATION
- --------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
INCREASE (DECREASE) IN CASH SEPTEMBER 30,
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,514,717 $ 1,170,598
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 55,584 20,970
Amortization 77,199 64,458
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (545,266) (53,300)
Inventory (636,114) (144,294)
Prepaid expenses (318,021) 23,930
Increase (decrease) in liabilities:
Accounts payable 54,549 (81,936)
Accrued expenses (24,811) (16,533)
Accrued income taxes 169,430 70,364
----------- -----------
Net cash provided by operations 347,267 1,054,257
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for capital expenditures (272,907) (74,656)
Payments for deposits (9,895)
Acquisition of assets of Activities Unlimited,LLC (500,000)
Payments for patents and trademarks (15,448) (6,578)
----------- -----------
Net cash used for investing activities (798,250) (81,234)
----------- -----------
NET INCREASE (DECREASE) IN CASH (450,983) 973,023
Cash at beginning of period 2,994,130 1,548,575
=========== ===========
Cash at end of period $ 2,543,147 $ 2,521,598
=========== ===========
See notes to financial statements.
</TABLE>
KOALA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1. Description of business:
The Company develops, designs, manufactures, and markets infant and child
protection products and children's activity equipment for commercial,
institutional and recreational establishments.
2. Unaudited information:
The accompanying financial statements are presented in accordance with the
requirements of Form 10-QSB 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-QSB may wish to refer to the
Company's 10-KSB for the year ended December 31, 1995 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.
3. Inventory:
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventory as of September 30, 1996 and December 31, 1995, consists
of the following:
September 30, 1996 December 31, 1995
------------------ -----------------
Raw materials and component
parts $ 792,904 $ 312,601
Finished goods 206,480 50,669
------------ ------------
$ 999,384 $363,270
============ ============
4. Earnings per share:
Net income per share is computed based upon the weighted average number of
common shares and dilutive common equivalent shares outstanding during the
period using the treasury stock method. Dilutive common equivalent shares
consist of stock options and warrants. Fully diluted and primary earnings
per share are the same amounts for all periods presented.
KOALA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
5. Acquisition of Activities Unlimited:
The Company acquired certain assets of Activities Unlimited, LLC in March
1996 for $500,000. Activities Unlimited develops and markets a wide variety
of commercial-use children's activities products such as activity tables
and play centers. The owners of Activities Unlimited will also be granted
options to purchase 1,000 shares of Koala stock for each $25,000 of
Activities Unlimited product line profit generated for each of the first
two years. The exercise price of the options will be the fair market value
of the stock as of the end of each respective year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPONENTS OF REVENUE AND EXPENSES
The Company's revenues are derived from the sale of Baby Changing Stations,
disposable sanitary liners for the Baby Changing Stations, Child Protection
Seats, Infant Seat Kradles, and Booster Buddy seats which are sold primarily to
commercial, institutional, and recreational facilities such as shopping centers,
retail establishments, restaurants, sports and recreational facilities, and
other public buildings. As discussed below, the Company acquired certain assets
of Activities Unlimited, a developer and distributor of commercial-use
children's activities products at the end of first quarter 1996.
Cost of sales consists of components manufactured for the Company, direct labor
and manufacturing overhead incurred by the Company. All components are
manufactured by outside vendors. In September 1996 the Company also began using
outside vendors for assembly of all products.
Selling, general, and administrative expenses consist primarily of executive and
office salaries, related payroll taxes, advertising expenses, and other
miscellaneous selling expenses.
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
In March 1996, the Company acquired certain assets of Activities Unlimited, a
developer of commercial use waiting room and educational activities equipment
for children for $500,000. Primary customers for such equipment include retail
stores, auto dealerships, restaurants, doctors' offices, airports, children's
day care centers and schools. For 1995, Activities Unlimited had unaudited sales
of $600,000 and pro forma net income of $101,000.
CORPORATE HEADQUARTERS RELOCATION
The Company completed the relocation of Koala's executive offices to the Denver
Colorado area during the third quarter. The move was accomplished with no
disruption to operations and minimal cost impact. Total relocation costs were
approximately $65,000. The new offices are near the Company's contract
manufacturing operations, which is an important factor in maintaining the
Company's high quality standards.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Sales increased 34.0% to $2,433,048 for the third quarter of 1996 compared to
$1,815,939 for the third quarter of 1995. Gross profit for the third quarter of
1996 was $1,538,795 (63.2% of sales) compared with $1,085,254 (59.8% of sales)
for the third quarter of 1995. The gross profit percentage for third quarter
1996 is higher than the average gross profit achieved for fiscal year 1995 of
61.0% due to the success of the Company's on-going production cost improvement
program. In September, assembly of the changing station was switched to an
outside subcontractor, which also contributed to the increase in gross profit.
The sales and marketing strategy the Company initiated in 1995 has resulted in
the additional sales revenue for 1996. The Company continued to increase sales
and marketing efforts by implementing focused marketing programs, and adding
regional and international sales personnel during 1996.
Sales from Activities Unlimited products have steadily increased since the
Company acquired Activities Unlimited in March 1996. Sales for third quarter
1996 are 91.2% higher than sales for second quarter 1996. The Company is
focusing on increasing sales of Activities Unlimited products in the future by
implementing new sales and marketing strategies. For 1996 sales of Activities
Unlimited products do not represent a significant portion of the Company's
overall revenue.
Selling, general, and administrative expenses increased for the third quarter of
1996 to $681,308 (28.0% of sales) from $416,251 (22.9% of sales) for the same
period in 1995. Sales and marketing expenses increased $152,600 for the third
quarter of 1996 compared to third quarter of 1995. This increase is a result of
new focused marketing programs. Additional sales salaries, commissions,
advertising, travel and other sales costs were incurred to implement sales
strategies in various markets. General and administrative expenses increased
$112,500 for third quarter of 1996 compared to third quarter of 1995. This
increase is due to increases in administrative costs such as telephone,
accounting personnel, personnel for Activities Unlimited, office supplies and
shareholder relations expenses. The increases in general and administrative
expenses were primarily brought about by the increased sales volume. No
individual expense category increased a material amount except that general and
administrative expenses include relocation costs as discussed above. Because the
dollar amount of selling, general and administrative expenses are relatively
low, overhead expense patterns, which vary from quarter to quarter, may cause
fluctuations in total selling, general, and administrative expenses as a percent
of sales. Management expects that these fluctuations will not be significant on
an annual basis.
Net income for the third quarter of 1996 was $556,642 (22.9% of sales) compared
with $436,678 (24.1% of sales) for the third quarter of 1995. This represents a
27.5% increase in net income. Earnings per share for the third quarter of 1996
increased 22.2% compared to third quarter 1995. The increases in net income and
earnings per share were less than the 34.0% increase in sales due to the
investment the Company has made in new and expanded marketing efforts and
administrative costs to support increased sales. While these expanded efforts
have reduced current quarter earnings on a percent of sales basis, management
expects the investment in these programs will result in increased sales and
profits in future quarters. The percentage increase in earnings per share was
also affected by an increase in common stock equivalents of 126,154 shares
compared to the same period of 1995. Common stock equivalents increased due to
issuance of incentive stock options to management in fourth quarter 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Sales for the nine months ended September 30, 1996 increased 41.0% to $6,739,073
compared to $4,780,956 for the same period of 1995. Gross profit for the nine
months ended September 30, 1996 was $4,219,879 (62.6% of sales) compared to
$2,932,164 (61.3% of sales) for the same period of 1995. The gross profit
percentage for the nine months ended September 30, 1996 is higher than the
average gross profit achieved for all of fiscal year 1995 of 61.0% due to
the success of the Company's on-going production cost improvement program.
Selling, general, and administrative expenses for the nine months ended
September 30, 1996 increased to $1,871,272 (27.8% of sales) from $1,103,843
(23.1% of sales) for the same period of 1995. Sales and marketing expenses
increased $348,000 including additional sales and marketing salaries and
commissions of $167,000 and new focused marketing programs of $181,000. These
additional costs relate to the sales strategy discussed in the third quarter
analysis which resulted in the increased sales generated during the nine months
ended September 30, 1996. General and administrative expenses increased $419,000
for the nine months ended September 30, 1996 compared to the same period of
1995. This increase is due to increased administrative support costs associated
with the additional sales volume. Administrative salaries, including Activities
Unlimited employees increased by $228,000, but no other single expense category
increased by a material amount except for relocation costs as discussed. Because
the dollar amount of selling, general and administrative expenses are relatively
low, overhead expense patterns, which vary from quarter to quarter, may cause
fluctuations in total selling, general, and administrative expenses as a percent
of sales. Management expects that these fluctuations will not be significant on
an annual basis.
Net income for the nine months ended September 30, 1996 was $1,514,717 (22.5% of
sales) compared to $1,170,598 (24.5% of sales) for the nine months ended
September 30, 1995. This increase in profits of $344,119 represents a 29.4%
increase over the same period of 1995. Earnings per share for the nine months
ended September 30, 1996 increased 22.9% compared to the same period of 1995.
The increases in net income and earnings per share were less than the 41.0%
increase in sales due to the investment the Company has made in new and expanded
marketing efforts and administrative costs to support increased sales. While
these expanded efforts have reduced current earnings on a percent of sales
basis, management expects the investment in these programs will result in
increased sales and profits in future quarters. The percentage increase in
earnings per share was also affected by an increase in common stock equivalents
of 126,255 shares compared to the same period of 1995. Common stock equivalents
increased due to issuance of incentive stock options to management in fourth
quarter 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its business activities primarily from
cash provided by operating activities and capital received from its October 1993
initial public offering. The Company has accumulated sufficient capital reserves
to finance operations without bank borrowings. Net cash generated from operating
activities for the nine months ended September 30, 1996 was $347,267 compared to
$1,054,257 for the same period of 1995. Cash generated during the nine months
ended September 30, 1996, as well as some of the Company's existing cash
reserves, was used to acquire certain assets of Activities Unlimited, LLC. as
discussed above, to increase inventory by $636,114 in order to substantially
reduce backlog and to more promptly meet customer demands, and to fund a
$545,266 increase in accounts receivable attributed to the increased sales
volume. Management expects to meet its capital needs for 1996 through cash
generated by operations and existing cash on hand.
The Company currently expects to spend $200,000 to $300,000 for capital
expenditures in 1996 related to product changes and product development. The
Company has a growth strategy which includes developing new products and
acquiring selected complementary companies or products. The Company may use
existing cash and Company stock to finance these growth strategies.
CURRENT OUTLOOK
During 1995, the Company made several strategic changes to increase sales and
market position. As noted above, greater emphasis was placed on dealer sales in
1995. This resulted in a lower gross profit percentage; however, sales increased
as did the dollar amount of gross profit. During 1996, the Company is
implementing changes in production and assembly of its products in an effort to
lower costs. Some of these benefits were realized during the nine months ended
September 30, 1996. Management believes that future periods should also reflect
production cost savings due to these changes when compared to prior years. Using
dealers to increase market penetration reduces the Company's need for increased
fixed sales overhead. In an effort to focus on new sales efforts with national
accounts, international sales, and GSA contracts, the Company hired a vice
president of sales. During the third quarter, two additional sales executives
were added to further focus marketing efforts. In May 1996 the Company hired
Jeffrey L. Vigil as Vice President of Finance and Administration to increase
administrative support and financial control. Management is evaluating other
personnel additions in an effort to target new market segments. Additionally,
the sales strategies begun in 1995 will be continued and expanded in 1996.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) No Reports on Form 8-K were filed during the quarter for which
this report is filed.
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 12, 1996 /s/Mark Betker
- --------------------------- -------------------------------------------
Date Signature
President
-------------------------------------------
Title
November 12, 1996 /s/ Jeffrey L. Vigil
- --------------------------- -------------------------------------------
Date Signature
Vice President - Finance and Administration
-------------------------------------------
Title
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,543,147
<SECURITIES> 0
<RECEIVABLES> 1,707,669
<ALLOWANCES> 23,694
<INVENTORY> 999,384
<CURRENT-ASSETS> 5,597,115
<PP&E> 816,997
<DEPRECIATION> 142,384
<TOTAL-ASSETS> 9,964,194
<CURRENT-LIABILITIES> 331,125
<BONDS> 0
0
0
<COMMON> 243,054
<OTHER-SE> 9,133,793
<TOTAL-LIABILITY-AND-EQUITY> 9,964,194
<SALES> 6,739,073
<TOTAL-REVENUES> 6,739,073
<CGS> 2,519,194
<TOTAL-COSTS> 2,519,194
<OTHER-EXPENSES> 1,834,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,385,381
<INCOME-TAX> 870,664
<INCOME-CONTINUING> 1,514,717
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,514,717
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
