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 JUNE 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)
4390 McMenemy Street, St. Paul, Minnesota 55127
(Address of principal executive offices)
(612) 490-1535
(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......
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
JUNE 30, DECEMBER 31,
1996 1995
---------- ----------
ASSETS (Unaudited)
CURRENT ASSETS
Cash $2,495,618 $2,994,130
Accounts receivable, net of allowance
for doubtful accounts 1,465,810 1,138,709
Inventory 935,120 363,270
Prepaid expenses 222,799 46,518
Deferred income taxes 6,070 6,070
---------- ----------
Total current assets 5,125,417 4,548,697
---------- ----------
EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 515,925 445,469
---------- ----------
OTHER ASSETS
Acquisition intangibles and patents,
net of accumulated amortization 3,706,971 3,252,643
Deposits 9,291 3,500
---------- ----------
Total other assets 3,716,262 3,256,143
---------- ----------
$9,357,604 $8,250,309
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 178,418 $ 96,019
Accrued expenses 13,987 35,938
Accrued income taxes 88,771 --
---------- ----------
Total current liabilities 281,176 131,957
---------- ----------
LONG-TERM LIABILITIES -- --
---------- ----------
DEFERRED INCOME TAXES 256,222 256,222
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, undesignated, no par value,
authorized 1,000,000 shares; none issued
and outstanding -- --
Common stock, $.10 par value, authorized
10,000,000 shares; issued and outstanding
2,430,543 shares (1996) and 2,399,312 243,054 239,931
shares (1995)
Additional paid in capital 4,636,056 4,639,179
Retained earnings 3,941,096 2,983,020
---------- ----------
Total shareholders' equity 8,820,206 7,862,130
---------- ----------
$9,357,604 $8,250,309
========== ==========
See notes to financial statements.
<TABLE>
<CAPTION>
KOALA CORPORATION
STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 2,435,219 $ 1,600,438 $ 4,306,025 $ 2,965,017
Cost of sales 902,362 626,864 1,624,941 1,118,107
----------- ----------- ----------- -----------
Gross profit 1,532,857 973,574 2,681,084 1,846,910
----------- ----------- ----------- -----------
Selling, general and administrative expenses 696,444 342,090 1,189,964 687,592
----------- ----------- ----------- -----------
OPERATING INCOME 836,413 631,484 1,491,120 1,159,318
----------- ----------- ----------- -----------
Other (income) expenses (26,438) (29,906) (66,959) (48,607)
Amortization of acquisition intangibles 27,687 21,486 49,299 42,972
----------- ----------- ----------- -----------
Income before provision
for income taxes 835,164 639,904 1,508,780 1,164,953
Provision for income taxes 304,835 236,765 550,705 431,033
----------- ----------- ----------- -----------
NET INCOME $ 530,329 $ 403,139 $ 958,075 $ 733,920
=========== =========== =========== ===========
NET INCOME PER SHARE $ 0.21 $ 0.17 $ 0.37 $ 0.31
=========== =========== =========== ===========
Weighted average shares outstanding 2,577,426 2,404,631 2,574,303 2,404,631
=========== =========== =========== ===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
KOALA CORPORATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
INCREASE (DECREASE) IN CASH JUNE 30,
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 958,075 $ 733,920
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 35,484 13,980
Amortization 49,299 42,972
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (327,101) 10,192
Inventory (571,850) (246,913)
Prepaid expenses (176,281) (10,159)
Increase (decrease) in liabilities:
Accounts payable 82,399 (79,138)
Accrued expenses (21,951) (10,107)
Accrued income taxes 88,771 97,153
----------- -----------
Net cash provided (used) by operations 116,845 551,900
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for capital expenditures (94,118) (56,846)
Payments for deposits (5,791)
Acquisition of assets of Activities Unlimited, LLC (500,000)
Payments for patents and intangibles (15,448) (3,045)
----------- -----------
Net cash used by investing activities (615,357) (59,891)
----------- -----------
NET INCREASE (DECREASE) IN CASH (498,512) 492,009
Cash at beginning of period 2,994,130 1,548,575
----------- -----------
Cash at end of period $ 2,495,618 $ 2,040,584
=========== ===========
See notes to financial statements.
</TABLE>
KOALA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 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 June 30, 1996 and December 31, 1995, consists of
the following:
June 30, 1996 December 31, 1995
------------- -----------------
Raw materials and component parts $719,719 $312,601
Finished goods 215,401 50,669
-------- --------
$935,120 $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.
5. Reclassifications:
Certain reclassifications have been made to prior period amounts to conform
to the current financial statement presentation. The changes were between
net sales and cost of sales. Freight out expense was previously included in
cost of sales. The Company has reclassified this expense as a reduction to
freight income. This presentation will more fairly present the relationship
of product sales to cost of product sales. The changes had no effect on the
net income amounts previously presented.
6. 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. Direct labor and manufacturing overhead relate
to the assembly of the products which has historically been performed by Company
personnel.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Sales increased 52.2% to $2,435,219 for the second quarter of 1996 compared to
$1,600,438 for the second quarter of 1995. Gross profit for the second quarter
of 1996 was $1,532,857 (62.9% of sales) compared with $973,574 (60.8% of sales)
for the second quarter of 1995. The gross profit percentage for second quarter
1996 is higher than the average gross profit achieved for fiscal year 1995 of
61.0% due to reductions in the production cost of the child protection seat and
reductions in the purchase cost of changing station liners.
The sales and marketing strategy the Company began 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 sales personnel in during 1996.
The second quarter of 1996 was the first quarter with sales revenue since the
Company acquired Activities Unlimited in March 1996. Integrating the Activities
Unlimited operations into the Company's existing business caused some
inefficiencies. The Company is focusing on increasing sales of Activities
Unlimited products in the future by implementing new sales and marketing
strategies.
Selling, general, and administrative expenses increased for the second quarter
of 1996 to $696,444 (28.6% of sales) from $342,090 (21.4% of sales) for the same
period in 1995. Sales and marketing expenses increased $157,700 for the second
quarter of 1996 compared to second quarter of 1995. This increase includes
$56,600 for new focused marketing programs, $22,500 for commissions paid to
outside sales personnel and $57,900 for salaries of additional sales and
marketing personnel. These additional costs were incurred in order to implement
the Company's sales and marketing strategies discussed above.
General and administrative expenses increased $196,600 for second quarter of
1996 compared to second quarter of 1995. This increase is due to increases in
administrative costs such as telephone, accounting personnel, office supplies
and shareholder relations expenses. The increases in general and administrative
expenses were primarily brought about by the increased sales volume. No single
expense category increased a material amount. 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 second quarter of 1996 was $530,329 (21.8% of sales) compared
with $403,139 (25.2% of sales) for the first quarter of 1995. This represents a
31.5% increase in net income. Earnings per share for the second quarter of 1996
increased 23.5% compared to second quarter 1995. The increases in net income and
earnings per share were less than the 52.2% 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 172,795 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.
SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Sales for the six months ended June 30, 1996 increased 45.3% to $4,306,025
compared to $2,965,017 for the same period of 1995. Gross profit for the six
months ended June 30, 1996 was $2,681,084 (62.3% of sales) compared to
$1,846,910 (62.3% of sales). The gross profit percentage for the six months
ended June 30, 1996 is higher than the average gross profit achieved for the
fiscal year 1995 of 61.0% due to reductions in the production cost of the child
protection seat and reductions in the purchase cost of changing station liners.
Selling, general, and administrative expenses for the six months ended June 30,
1996 increased to $1,189,964 (27.6% of sales) from $687,592 (23.2% of sales) for
the same period of 1995. Sales and marketing expenses increased $245,400
including additional sales and marketing salaries and commissions of $160,500
and new focused marketing programs of $84,900. These additional costs relate to
the sales strategy discussed in the second quarter analysis which resulted in
the increased sales generated during the six months ended June 30, 1996.
General and administrative expenses increased $257,000 for the six months ended
June 30, 1996 compared to the same period of 1995. This increase is due to
increased administrative support costs associated with the additional sales
volume. No single expense category increased by a material amount. 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 six months ended June 30, 1996 was $958,075 (22.2% of sales)
compared to $733,920 (24.8% of sales) for the six months ended June 30, 1995.
This increase in profits of $224,155 represents a 30.5% increase over the same
period of 1995. Earnings per share for the six months ended June 30, 1996
increased 19.4% compared to the same period of 1995. The increases in net income
and earnings per share were less than the 45.3% 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 to 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 172,795 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 in its October 1993
initial public offering. The Company has accumulated sufficient capital reserves
to finance operations without bank borrowings. Net cash from operating
activities for the six months ended June 30, 1996, was $116,845 compared to
$551,900 for the same period of 1995. Cash generated during the six months ended
June 30, as well as some of the Company's existing cash reserves were used to
acquire certain assets of Activities Unlimited, LLC. as discussed above and to
increase inventory by $571,850 in order to meet customer demands. Management
expects to meet its capital needs for 1996 through cash generated by operations
and its 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. 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. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
a) The Company's Annual Meeting of Shareholders was held on May 21, 1996.
b) The following directors were elected to serve until the 1996 Annual Meeting
of Shareholders or until their successors are duly elected and qualified:
Mark A. Betker; Jeff H. Hilger; John T. Pfannenstein; Thomas W. Gamel;
Michael C. Franson; Donald R. Brattain.
c) In addition to the electing of directors, the Company's shareholders voted
on the following proposals:
i. To set the number of directors at six.
ii. To adopt an amendment to Articles of Incorporation to authorize the
creation and issuance of preferred stock.
iii. To approve the 1995 Stock Option Plan.
vi. To ratify the appointment of Blanski Peter Kronlage & Zoch, P.A. as
the Company's independent auditors.
Set forth below are the results of each of the matters voted upon at the
Meeting:
Against/ Abstention/Broker
Matter For Withheld Non-votes
- ------ --- -------- ---------
Set number of directors at six 2,133,471 3,384 1,796
Electing Directors
Mark A. Betker 2,125,682 12,969
Jeff H. Hilger 2,125,882 12,769
John T. Pfannenstein 2,125,882 12,769
Thomas W. Gamel 2,125,862 12,789
Michael C. Franson 2,124,682 13,969
Donald R. Brattain 2,125,182 13,469
Creation/issuance of preferred stock 1,522,424 54,364 561,863
Approve Stock Option Plan 1,592,877 50,299 495,475
Ratifying the appointment of
Blanski Peter Kronlage &
Zoch, P.A. 2,130,503 4,450 3,698
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
July 15, 1996 /s/Mark Betker
- --------------------------- --------------------
Date Signature
President
Title
July 15, 1996 /s/ Jeffrey L. Vigil
- --------------------------- --------------------
Date Signature
Vice President - Finance and
Administration
Title
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,495,618
<SECURITIES> 0
<RECEIVABLES> 1,485,165
<ALLOWANCES> 19,355
<INVENTORY> 935,120
<CURRENT-ASSETS> 5,125,417
<PP&E> 638,209
<DEPRECIATION> 122,284
<TOTAL-ASSETS> 9,357,604
<CURRENT-LIABILITIES> 281,176
<BONDS> 0
0
0
<COMMON> 243,054
<OTHER-SE> 8,577,152
<TOTAL-LIABILITY-AND-EQUITY> 9,357,604
<SALES> 4,306,025
<TOTAL-REVENUES> 4,306,025
<CGS> 1,624,941
<TOTAL-COSTS> 1,624,941
<OTHER-EXPENSES> 1,189,964
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,508,780
<INCOME-TAX> 550,705
<INCOME-CONTINUING> 958,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 958,075
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
