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 March 31, 1997
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[ ] 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
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11600 E 53rd Ave. Unit D, Denver, CO 80239
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(Address of principal executive offices)
(303) 574-1000
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(Issuer's telephone number)
N/A
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(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 May 1, 1997 was 2,481,260 shares.
Transitional Small Business Disclosure Format (Check one):
Yes..... No...X...
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
KOALA CORPORATION
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<TABLE>
<CAPTION>
BALANCE SHEETS March 31, December 31,
1997 1996
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current Assets
Cash ..................................... $ 4,155,552 $ 3,442,601
Accounts receivable, net of allowance
for doubtful accounts .................. 1,545,647 1,656,515
Refundable income taxes .................. 46,279 338,200
Inventory ................................ 511,092 443,680
Prepaid expenses ......................... 231,939 82,460
Deferred income taxes .................... 10,900 10,900
------ ------
Total current assets ....................... 6,501,409 5,974,356
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Equipment, net of accumulated
depreciation ............................. 849,781 697,789
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Other Assets
Acquisition intangibles and patents ...... 3,652,755 3,679,057
--------- ---------
Total other assets ......................... 3,652,755 3,679,057
--------- ---------
$11,003,945 $10,351,202
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities
Current Liabilities
Accounts payable ......................... $ 407,784 $ 273,511
Accrued expenses ......................... 45,001 56,921
Accrued income taxes ..................... -- --
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Total current liabilities .................. 452,785 330,432
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Long-Term Liabilities ...................... -- --
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Deferred income taxes ...................... 242,200 242,200
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Shareholders' Equity
Preferred stock, 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, 2,481,260 ...... 248,126 248,126
Additional paid in capital ............... 4,651,884 4,651,884
Retained earnings ........................ 5,408,950 4,878,560
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Total shareholders' equity ................. 10,308,960 9,778,570
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$11,003,945 $10,351,202
=========== ===========
</TABLE>
<PAGE>
KOALA CORPORATION
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<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Three Months Ended
March 31,
1997 1996
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales ................................ $ 2,251,172 $ 1,870,806
Cost of sales ............................ 723,114 722,579
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Gross profit ............................. 1,528,058 1,148,227
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Selling, general and
administrative expenses .................. 720,786 493,520
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Operating income ......................... 807,272 654,707
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Other income ............................. 41,352 40,521
Amortization of acquisition
intangibles and patents ................ (26,313) (21,612)
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Income before provision
for income taxes ...................... 822,311 673,616
Provision for income taxes ............... 291,921 245,870
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Net income ............................... $ 530,390 $ 427,746
=========== ===========
Net income per share ..................... $ 0.21 $ 0.17
=========== ===========
Weighted average shares outstanding ...... 2,515,088 2,517,171
========= =========
</TABLE>
<PAGE>
KOALA CORPORATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Three Months Ended
Increase (Decrease) in Cash March 31,
1997 1996
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................... $ 530,390 $ 427,746
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ......................... 20,780 17,493
Amortization ......................... 26,313 (21,612)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ............... 110,868 19,970
Refundable income taxes ........... 291,921 --
Inventory ......................... (67,412) (19,603)
Prepaid expenses .................. (149,479) (108,260)
Increase (decrease) in liabilities:
Accounts payable .................. 134,273 (33,536)
Accrued expenses .................. (11,920) (27,945)
Accrued income taxes .............. -- 57,167
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Net cash provided by operations ............ 885,734 311,420
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Cash flows from investing activities:
Payments for capital expenditures ........ (172,783) (32,541)
Acquisition of assets of
Activities Unlimited, LLC .............. -- (500,000)
Payments for patents ..................... -- (260)
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Net cash used in investing activities ..... (172,783) (532,801)
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Net increase (decrease) in cash ............ 712,951 (221,381)
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Cash at beginning of period ................ 3,442,601 2,994,130
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Cash at end of period ...................... $ 4,155,552 $ 2,772,749
=========== ===========
</TABLE>
<PAGE>
KOALA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 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, 1996 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 March 31, 1997 and December 31, 1996, consists of the
following:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
Raw materials and component parts $ 108,338 $ 62,879
Finished goods .................. 402,754 380,801
-------- --------
$ 511,092 $443,680
======== ========
</TABLE>
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.
<PAGE>
KOALA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 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.
<PAGE>
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements that describe the Company's
business and the expectations of the Company and management. These statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those set forth. These risks and uncertainties
include, but are not limited to, the Company's reliance on the revenues from a
single product, the Koala Bear Kare(TM) Changing Station, which has generated a
substantial amount of the Company's revenues; the uncertainties associated with
the introduction of new products; management of growth, including the ability to
attract and retain qualified employees; dependence on Mark Betker, its president
and chief executive officer; substantial competition from larger companies with
greater financial and other resources than the Company; its dependence on
suppliers for manufacture of its products; currency fluctuations and other risks
associated with foreign sales; quarterly fluctuations in revenues, income and
overhead expense; and potential products liability risk associated with its
existing and future products.
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. In September 1996, the Company sub-contracted out the assembly
operations.
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.
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,1996
Sales increased 20.3% to $2,251,172 for the first quarter of 1997 compared
to $1,870,806 for the first quarter of 1996 The sales and marketing strategy
implemented by the Company has resulted in the additional sales revenue for
1997. The Company continued to increase sales and marketing efforts through
focused marketing programs, and the addition of sales personnel during 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
- - (continued)
Gross profit for the first quarter of 1997 was $1,528,058 (67.9% of sales)
compared with $1,148,227 (61.4% of sales) for the first quarter of 1996. The
gross profit percentage for first quarter 1997 is higher than the gross profit
achieved for first quarter 1996 of 61.4% due to price reductions achieved in the
cost of raw materials and component parts and the change to sub-contracted
assembly in September 1996. The Company no longer maintains a manufacturing
facility for assembling its products thus reducing overhead costs.
Selling, general, and administrative expenses increased for the first
quarter of 1997 to $720,786 (32.0% of sales) from $493,520 (26.4% of sales) for
the same period in 1996. Sales and marketing expenses increased $211,067 for the
first quarter of 1997 compared to first quarter of 1996. These cost increases
were for various marketing programs, commissions paid to outside sales personnel
and salaries of the sales and marketing personnel added in the second half of
1996. These costs were incurred in furtherance of the Company's sales and
marketing strategies discussed above.
General and administrative expenses increased $16,199 for first quarter of
1997 compared to first quarter of 1996. 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 first quarter of 1997 was $530,390 (23.6% of sales)
compared with $427,746 (22.9% of sales) for the first quarter of 1996. This
represents a 24.0% increase in net income. Earnings per share for the first
quarter of 1997 increased 24.1% compared to first quarter 1996. The Company
believes that the product cost reductions, the shift to sub-contracted assembly
and the investment in new and expanded marketing areas and administrative areas
to support increased sales contributed to the improved first quarter 1997
results. Net income rose 24.0% compared to first quarter of 1996 while sales
rose 20.3% over that same period.
Liquidity and Capital Resources
The Company finances its business activities primarily from cash provided
by operating activities. Cash provided by operating activities for first quarter
1997 and 1996 was $885,734 and 311,420, respectively. The Company intends to
utilize this operating cash flow to expand the Company's marketing activities,
for product development, and acquisitions of new products and companies as well
as for working capital purposes. Working capital as of March 31, 1997 and 1996
was $6,048,624 and $5,643,924, respectively, and cash balances were $4,155,552
and $3,442,601 as of March 31, 1997 and 1996, respectively.
<PAGE>
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
May 15, 1997 /s/Mark A. Betker
- ------------ -----------------
Date Signature
Chairman and Chief Executive Officer
Title
May 15, 1997 /s/ Jeffrey L. Vigil
- ------------ --------------------
Date Signature
Vice President - Finance and Administration
Title
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,155,552
<SECURITIES> 0
<RECEIVABLES> 1,587,973
<ALLOWANCES> 42,326
<INVENTORY> 511,092
<CURRENT-ASSETS> 6,501,409
<PP&E> 1,036,057
<DEPRECIATION> 186,276
<TOTAL-ASSETS> 11,003,945
<CURRENT-LIABILITIES> 452,785
<BONDS> 0
0
0
<COMMON> 248,126
<OTHER-SE> 10,060,834
<TOTAL-LIABILITY-AND-EQUITY> 11,003,945
<SALES> 2,251,172
<TOTAL-REVENUES> 2,251,172
<CGS> 723,114
<TOTAL-COSTS> 723,114
<OTHER-EXPENSES> 705,747
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 822,311
<INCOME-TAX> 291,921
<INCOME-CONTINUING> 530,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 530,390
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
