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, 1998
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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
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5031 So. Ulster Street, Suite 300, Denver, CO 80237
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(Address of principal executive offices)
(303) 770-3500
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(Issuer's telephone number)
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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 September 30, 1998 was 2,527,362 shares.
Transitional Small Business Disclosure Format (Check one):
Yes..... No...X...
1
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
KOALA CORPORATION
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $1,187,522 $1,832,677
Accounts receivable, less allowance for doubtful accounts
of $45,054 in 1998 and $45,703 in 1997 3,229,418 2,212,802
Refundable income taxes - 74,523
Inventories 1,708,608 1,103,355
Prepaid expenses 693,622 416,120
Deferred offering and acquisition costs 251,000 -
Deferred income taxes 14,314 14,314
----------- -----------
Total current assets 7,084,484 5,653,791
----------- -----------
Property and equipment 1,972,848 1,561,324
Less accumulated depreciation and amortization 508,082 322,616
----------- -----------
1,464,766 1,238,708
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Other Assets:
Intangibles, net of accumulated amortization
of $699,466 in 1998, and $496,221 in 1997 8,534,896 8,064,301
----------- -----------
$17,084,146 $14,956,800
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $1,328,002 $1,312,518
Accrued expenses and income taxes 389,136 396,163
----------- -----------
Total current liabilities 1,717,138 1,708,681
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Deferred income taxes 398,047 398,047
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Shareholders' Equity:
Preferred stock, no par value; 1,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.10 par value; 10,000,000 shares authorized;
issued and outstanding 2,527,362 in 1998 and 1997 252,736 252,736
Additional paid-in capital 5,307,988 5,307,988
Other comprehensive income (127,971) (25,124)
Retained earnings 9,536,208 7,314,472
----------- -----------
Total stockholders' equity 14,968,961 12,850,072
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$17,084,146 $14,956,800
=========== ===========
</TABLE>
See notes to consolidated financial statements
2
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KOALA CORPORATION
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<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Sales $5,048,932 $4,048,932 $13,492,507 $9,340,926
Cost of sales 2,347,158 1,700,986 5,977,138 3,615,529
--------------- --------------- ----------------- ---------------
Gross profit 2,701,774 2,347,946 7,515,369 5,725,397
Selling, general and administrative expenses 1,356,002 1,260,246 3,894,621 2,857,808
Amortization of intangibles 65,379 71,625 196,137 134,251
--------------- --------------- ----------------- ---------------
Income from operations 1,280,393 1,016,075 3,424,611 2,733,338
--------------- --------------- ----------------- ---------------
Other (income) expense 20,244 (19,314) (19,940) (97,541)
--------------- --------------- ----------------- ---------------
Income before income taxes 1,260,149 1,035,389 3,444,551 2,830,879
Provision for income taxes 447,352 367,563 1,222,815 1,004,962
--------------- --------------- ----------------- ---------------
Net income $812,797 $667,826 $2,221,736 $1,825,917
=============== =============== ================= ===============
Other comprehensive income (78,786) - (102,847) -
--------------- --------------- ----------------- ---------------
Comprehensive income $734,011 $667,826 $2,118,889 $1,825,917
=============== =============== ================= ===============
Net income per share $0.32 $0.27 $0.88 $0.73
=============== =============== ================= ===============
Weighted average shares outstanding 2,527,362 2,523,072 2,527,362 2,496,223
=============== =============== ================= ===============
Net income per share - diluted $0.32 $0.26 $0.86 $0.72
=============== =============== ================= ===============
Weighted average shares outstanding - diluted 2,571,265 2,585,410 2,588,018 2,535,770
=============== =============== ================= ===============
</TABLE>
See notes to consolidated financial statements
3
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KOALA CORPORATION
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended September 30,
-------------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $2,221,736 $1,825,917
Adjustments to reconcile net income to
Depreciation 186,926 92,287
Amortization 196,137 134,251
(Increase) decrease in assets:
Accounts receivable, trade (974,233) (604,481)
Refundable income taxes 74,523 338,200
Inventories (643,853) 2,115
Prepaid expenses (292,528) (395,283)
Deferred offering and acquisition costs (251,000) 0
Increase (decrease) in liabilities:
Accounts payable 58,524 706,829
Accrued expenses 107,874 (102,742)
Accrued income taxes (119,924) 213,937
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Net cash provided by operating activities 564,182 2,211,030
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Cash flows from investing activities:
Payments for capital expenditures (430,479) (401,124)
Purchase of Delta Play, Ltd., net of cash acquired (610,160) (4,594,455)
Payments for patents and intangibles (65,851) (20,461)
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Net cash used by investing activities (1,106,490) (5,016,040)
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Effect of exchange rate changes on cash (102,847) -
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Net (decrease) in cash (645,155) (2,805,010)
Cash at beginning of period 1,832,677 3,442,601
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Cash at end of period $1,187,522 $637,591
========== ==========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. Description of business and principles of consolidation:
Nature of operations:
Koala Corporation, together with its wholly owned subsidiaries ( the
"Company"), 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 indoor and outdoor modular play equipment.
Principles of consolidation:
The consolidated financial statements include the accounts of Koala
Corporation and all subsidiaries. All significant inter-company accounts
and transactions have been eliminated in consolidation. The operations of
Delta Play, Ltd. are included in the accompanying financial statements from
June 1, 1997, the effective date of its acquisition. See Note 6 below.
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, 1997 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, 1998 are not necessarily
indicative of the results for a full year.
3. Inventory:
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventory as of September 30, 1998 and December 31, 1997, consists
of the following:
September 30,1998 December 31, 1997
----------------- -----------------
Raw materials $1,024,828 $ 605,066
Finished goods 683,780 498,289
---------- ----------
$1,708,608 $1,103,355
========== ==========
5
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KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
4. Credit Facility:
The Company obtained a $2.0 million unsecured line of credit in June 1997.
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 on June 24, 1999. There were no amounts
outstanding under the credit facility as of September 30, 1998.
5. Earnings per share:
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share. Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts
for all periods have been restated to conform to the Statement 128
requirements.
There is no difference between after tax earnings for calculation of basic
earnings per share versus diluted earnings per share. The reconciliation of
the weighted average shares outstanding for purposes of calculating basic
earnings per share versus diluted earnings per share is as follows:
September 30,
1998 1997
---- ----
Weighted average shares
outstanding for basic EPS ................ 2,527,362 2,496,223
Effect of dilutive securities:
Employee stock options .............. 60,656 37,871
Warrants ............................ 0 1,676
--------- ---------
Dilutive potential common shares ............. 60,656 39,547
--------- ---------
Weighted average shares
outstanding for diluted EPS .................. 2,588,018 2,535,770
========= =========
6. Acquisition of Delta Play, Ltd.:
On June 23, 1997, the Company acquired substantially all of the assets of
Delta Play, Ltd. (Delta), a leading provider of custom indoor and outdoor
modular play systems based in Vancouver, British Columbia. The acquisition
was effective June 1, 1997 and was accounted for as a purchase. Results of
operations of Delta were included in the Company's consolidated statements
of income beginning on the effective date.
As initial consideration, the Company paid $4,180,609 cash and issued
40,000 shares of the Company's common stock valued at $600,000. In
addition, costs related to the acquisition of approximately $456,000 were
incurred and capitalized as goodwill. The purchase agreement also provided
for additional consideration in the form of cash payments if certain
operating performance criteria were met by Delta over the 12 month period
from June 1, 1997 to May
6
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KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTMBER 30, 1998 AND 1997
(UNAUDITED)
6. Acquisition of Delta Play, Ltd.: (continued)
31, 1998. In August 1998, the Company paid $610,160 in additional
consideration pursuant to the earnout provisions of the Delta purchase
agreement. The additional consideration paid was treated as goodwill and
recorded to intangibles on the balance sheet.
The pro forma unaudited results of operations for the nine months ended
September 30, 1997, assuming consummation of the purchase as of January 1,
1997, are as follows:
Net sales $11,119,400
Net income $1,929,200
Net income per share - diluted $0.74
7. Comprehensive Income:
As of January 1, 1998, the Company adopted Statement No. 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net income or
shareholders' equity. Statement 130 requires foreign currency translation
adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the
requirements of Statement 130.
8. Stock Option Plan:
In January 1998, the Company authorized the amendment and restatement of
the 1995 Koala Corporation Stock Option Plan to grant an additional 250,000
shares and allow the transfer of non-qualified stock options to family
members without Board of Directors approval or to non-employees with Board
of Directors approval. The amendment and restatement was approved by the
Company's shareholders at its annual shareholders meeting in May 1998.
9. Pending Acquisition:
On August 13, 1998, the Company entered into an agreement to purchase the
combined assets of Park Structures, Inc. and Park Structures Sales, Inc.
("Park Structures") in consideration for up to $18.7 million in cash and
common stock of Koala Corporation. Park Structures produces and markets
children's outdoor modular play systems for municipalities, parks, public
and private schools, day care centers and private developers. Closing of
the Park Structures acquisition will occur simultaneously with closing of a
secondary public offering of the Company's common stock. The Company plans
to issue approximately 1,000,000 shares of common stock pursuant to the
proposed secondary offering.
7
<PAGE>
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, 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; 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; the success of its Koala
Kare marketing strategy; 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; and potential product liability risk associated with its
existing and future products.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Koala Corporation is a leading designer, producer and worldwide marketer of
innovative commercial products, systems and solutions that create attractive
family-friendly environments for businesses and other public venues. The Company
produces family convenience products, children's activity products and
children's modular play equipment. The Koala Bear Kare Baby Changing Station,
the Company's initial product, has been installed in approximately 300,000
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 vistors who bring
children to their establishments. Koala markets its products through an
intergrated 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.
Components of Sales and Expense
The Company's sales are derived primarily from the sale of its family
convenience products, which include Baby Changing Stations, disposable sanitary
liners for the Baby Changing Stations, Child Protection Seats, Infant Seat
Kradles, and Booster Buddy seats. These products are sold primarily to
commercial, institutional, and recreational facilities such as shopping centers,
retail establishments, restaurants, sports and recreational facilities, and
other public buildings.
In addition, in furtherance of the Company's "Koala Kare" marketing strategy,
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, and Delta Play, Ltd. ("Delta"), a leading provider of custom
indoor and outdoor modular play systems, in June 1997. Sales from these acquired
product lines have reduced the Company's dependency on revenues from Baby
Changing Stations. The Company recognizes sales at the time its products are
shipped.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Components of Sales and Expenses (continued)
Cost of sales consists of components manufactured for the Company and direct
labor and manufacturing overhead incurred by the Company. All major components
are manufactured by outside vendors. Direct labor and manufacturing overhead
relate to the assembly of the products. Beginning in September 1996, the Company
sub-contracted out the assembly operations for the Baby Changing Stations, Child
Protection Seats and Infant Seat Kradles.
Selling, general, and administrative expenses consist primarily of executive and
office salaries, related payroll taxes, advertising expenses, commissions paid
to manufacturers's sales representatives and other miscellaneous selling
expenses.
The Company provides limited warranties for its products. The Company has
experienced minimal returns and warranty claims, and therefore no accrual has
been made for future claims.
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 Developments
On August 14, 1998, the Company entered into an agreement to purchase the
combined assets of Park Structures, Inc. and Park Structures Sales, Inc. ("Park
Structures") in consideration for up to $18.7 million. Park Structures produces
and markets children's outdoor modular play systems for municipalities, parks,
public and private schools, day care centers and private developers.
The Park Structures acquisition is the Company's third business acquisition in
three years and further broadens the Company's product lines. The acquisition
complements the Company's June 1997 acquisition of a line of children's indoor
modular play systems and also affords the Company an opportunity to sell its
family convenience and children's activity products into new markets. Park
Structures will receive $12.7 million in cash at closing and is entitled to
receive up to an additional $6.0 million, of which $4.5 million is payable in
cash and $1.5 million is payable in common stock of the Company, if certain
earnings targets are met. Over the four years ended December 31, 1997, Park
Structures' sales have grown at a compound average rate of 34%.
Closing of the Park Structures acquisition will occur simultaneously with
closing of a proposed secondary offering. The closing was scheduled to occur by
October 31, 1998. The Company has extended the closing date to December 31, 1998
due to the impact of market conditions on its ability to complete the public
offering. The Company is considering other options to finance the acquisition if
the public offering is not completed. There can be no assurance that the
acquisition will be completed.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended Sept. 30, 1998 Compared to Three Months Ended Sept. 30, 1997
Sales increased 25% to $5,048,932 for the third quarter of 1998 compared to
$4,048,932 for the third quarter of 1997. Sales from Delta provided the majority
of the increase, while the sales and marketing strategy implemented by the
Company for the family convenience and children's activity products also
contributed to the additional sales growth for 1998.
Gross profit for the third quarter of 1998 was $2,701,774 (54% of sales)
compared with $2,347,946 (58% of sales) for the third quarter of 1997. The gross
profit percentage for the third quarter 1998 decreased from the gross profit
achieved for third quarter 1997 primarily because of an increased proportion of
Delta sales, which realize a lower margin, along with a higher proportion of
sales of family convenience and children's activity products through dealer
channels, where reduced margins are realized.
Selling, general and administrative expenses increased for the third quarter of
1998 to $1,356,002 (27% of sales) from $1,260,246 (31% of sales) for the same
period in 1997. Sales and marketing expenses increased $104,829 for the third
quarter of 1998 compared to third quarter of 1997. This increase is primarily
due to variable sales expenses such as advertising costs and commissions paid
that have increased because of the sales increases. General and administrative
expenses decreased $9,073 for the third quarter of 1998 compared to the third
quarter of 1997. The slight decrease in general and administrative expenses was
primarily due to the fact that most of the administrative cost infrastructure
was put in place by the third quarter of 1997 and has remained fixed in nature.
Net income for the third quarter of 1998 was $812,797 (16% of sales) compared
with $667,826 (16% of sales) for the third quarter of 1997. This represents a
22% increase in net income. Net income per share-diluted for the third quarter
of 1998 increased 23% compared to the third quarter of 1997.
Nine Months Ended Sept. 30, 1998 Compared to Nine Months Ended Sept. 30, 1997
Sales increased 44% to $13,492,507 for the nine months ended September 30, 1998
compared to $9,340,926 for the nine months ended September 30, 1997. A majority
of the increase resulted from sales of children's indoor modular play equipment,
a product line acquired effective June 1, 1997. The sales and marketing programs
that the Company implemented for the family convenience and children's activity
product lines also contributed to the increased sales.
Gross profit increased 31% to $7,515,369 for the nine months ended September 30,
1998 compared to $5,725,397 for the nine months ended September 30, 1997. As a
percentage of sales, gross profit decreased in the 1998 period compared to the
1997 period primarily because of a change in product mix that included sales of
children's indoor modular play equipment along with a higher proportion of sales
of family convenience and children's activity products through dealer channels,
where lower gross profit margins are realized.
Selling, general and administrative expense increased 36% to $3,894,621 for the
nine months ended September 30, 1998 compared to $2,857,808 for the nine months
ended September 30, 1997. Sales and marketing expense increased 33% to
$2,555,352 for the nine months ended September 30, 1998 compared to $1,921,963
for the nine months ended September 30, 1997. These cost increases were due to
the inclusion of the children's indoor modular play equipment line and the
higher level of sales achieved and included costs for various marketing
programs, commissions paid to manufacturer's sales
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended Sept. 30, 1998 Compared to Nine Months Ended Sept. 30, 1997
(continued)
representatives and salaries of sales and marketing personnel added subsequent
to the 1997 period. General and administrative expense increased 43% to
$1,339,269 for the nine months ended September 30, 1998 compared to $935,845 for
the nine months ended September 30, 1997. The increase in general and
administrative expense was primarily the result of the inclusion of the
children's indoor modular play equipment line.
The Company's effective tax rates were 35.5% for both the nine months ended
September 30, 1998 and 1997.
Net income increased 22% to $2,221,736 for the nine months ended September 30,
1998 compared to $1,825,917 for the nine months ended September 30, 1997. As a
percentage of sales, net income declined during the 1998 period compared to the
1997 period primarily due to the inclusion of the children's modular play
equipment line in the product mix. Net income per share-diluted increased 19%,
or $.14, to $.86 for the nine months ended September 30, 1998 compared to $.72
for the nine months ended September 30, 1997. The percentage increase in net
income per share-diluted was lower than the percentage increase in net income as
a result of an increase of 52,248 shares in the weighted average number of
shares outstanding.
Liquidity and Capital Resources
The Company's free cashflow, defined as net income plus non-cash items,
increased by $559,452 to $2,611,907 for the nine months ended September 30, 1998
from $2,052,455 for the nine months ended September 30, 1997. The Company
finances its business activities primarily from cash provided by operating
activities. Cash provided by operating activities for the nine months ended
September 30, 1998 and 1997 was $564,182 and $2,211,030, respectively. The
decrease in cash provided by operating activities for the nine months ended
September 30, 1998 compared to the nine months ended September 30, 1997 is due
primarily to a combination of an increase in accounts receivable due to a 44%
increase in year over year sales, increased investment in inventory levels of
raw materials and finished goods to support the sales growth, a decrease of
accounts payable and increases in prepaid expenses and deferred offering and
acquisition costs during the 1998 period and the receipt of a large tax refund
in March 1997.
Working capital as of September 30, 1998 and December 31, 1997 was $5,367,346
and $3,945,110, respectively, and cash balances were $1,187,522 and $1,832,677
at the same dates.
The Company has used its operating cash flow 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 $5,016,040 and $1,106,490 for the nine months ended September 30,
1997 and 1998, respectively. In 1997, substantially all of the cash was used to
purchase the children's modular play equipment assets, with the balance
primarily devoted to capital expenditures. Net cash used by investing activities
for the nine months ended September 30, 1998 relate to capital expenditures for
leasehold improvements on a new facility in British Columbia, tooling, computer
hardware and software, patents and intangibles. The Company also paid $610,160
of additional consideration under the earn-out provisions of the Delta purchase
agreement in August 1998. The Company does not anticipate any extraordinary
capital expenditures in the near future.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
The Company obtained a $2.0 million unsecured line of credit from a bank in June
1997. The Company borrowed $500,000 on the line to fund operations after the
acquisition of the children's modular play equipment line in July 1997 and
repaid the loan from cash flow later in the same month. Management expects to
use the credit facility periodically for short-term working capital needs and
for short-term financing of future acquisitions. The interest rate on amounts
borrowed under the line of credit ranges from LIBOR plus 2.25% to LIBOR plus
2.75%. There were no amounts outstanding under the credit facility as of
September 30, 1998.
As discussed above, Park Structures is entitled to receive up to an additonal
$4.5 million in cash if certain earnings targets are met. The Company
anticipates that such payments would be funded from existing cash balances, cash
flow from operations and short-term borrowings under the line of credit. The
Company believes that cash flow from operations will be sufficient to fund its
operations for the foreseeable future.
Year 2000
The Company has developed a plan to make its information technology ready for
the Year 2000 and believes that its critical data processing systems are
currently ready for the Year 2000. The Company has expended approximately
$20,000 to upgrade its systems to be Year 2000 compliant.
Material disruptions to the operations of the Company's major customers and
suppliers as a result of Year 2000 issues could have a material adverse impact
on the Company's operations and financial condition. The Company has initiated
communications with all of its significant suppliers and customers to determine
the extent to which the Company's operations are vulnerable to those third
parties' failure to make their own systems Year 2000 compliant. Although the
Company has not received responses from all of these suppliers and customers, it
does not foresee any significant problems with this issue, and is developing
contingency plans to mitigate any possible disruptions.
New Accounting Standards
The FASB issued SFAS No. 131, Disclosure about Segments of an Enterprise and
Related Information, on June 30, 1997. This statement establishes additional
standards for segment reporting in the financial statements and is effective for
the Company's fiscal year ended December 31, 1998. Management intends to comply
with the disclosure requirements of this statement and does not anticipate a
material impact on the results of operations of each segment.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Acivities, which is required to be adopted in years
beginning after June 15, 1998. Management does not anticipate that the adoption
of this statement will have a significant effect on earnings or the financial
position of the Company.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1 - 4. None
Item 5. Submission of Shareholder Proposals
Proposals by Shareholders of the Company to be presented at the next
Annual Meeting of Shareholders must be received by the Company on or before
December 20, 1998 to be included in the Company's Proxy Statement and proxy for
that meeting. If a Shareholder intends to submit a proposal at the meeting that
is not included in the Company's proxy statement, and the Shareholder fails to
notify the Company prior to March 9, 1999 of such proposal, then the proxies
appointed by the Company's Management would be allowed to use their
discretionary voting authority when the proposal is raised at the annual
meeting, without any discussion of the matter in the proxy statement. The
proponent must be a record or beneficial owner entitled to vote on his or her
proposal at the next Annual Meeting and must continue to own such security
entitling him or her to vote through that date on which the Meeting is held. The
proponent must own 1% or more of the outstanding shares, or $1,000.00 in market
value, of the Company's Common Stock and must have owned such shares for one
year in order to present a shareholder proposal to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule.
Exhibit 27.2 Financial Data Schedule, restated.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
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 16, 1998 /s/Mark A. Betker
- ----------------- --------------------------------------------
Chairman and Chief Executive Officer
(Principal Executive Officer)
November 16, 1998 /s/Jeffrey L. Vigil
- ----------------- --------------------------------------------
Vice President Finance and Administration
(Principal Financial and Accounting Officer)
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