U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
[ ] 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 issuer as specified in its charter)
Colorado 84-1238908
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7881 South Wheeling Court, Englewood, CO 80112
----------------------------------------------
(Address of principal executive offices)
(303) 539-8300
--------------
(Issuer's telephone number)
-----------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes ...X... No......
The number of shares outstanding of the issuer's common stock, $.10 par value,
as of November 8, 2002 was 6,778,334 shares.
KOALA CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
o Consolidated balance sheets as of September 30, 2002
and December 31, 2001 3
o Consolidated statements of operations for the three
and nine months ended September 30, 2002 and 2001 4
o Consolidated statements of cash flows for the nine months
ended September 30, 2002 and 2001 5
o Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 4. Controls and Procedures 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
2
Item 1. Financial Statements
KOALA CORPORATION
----------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001
------------ ------------
(unaudited)
ASSETS
------
Current Assets
Cash and cash equivalents $ 504,684 $ --
Trade accounts receivable, net 7,104,911 7,372,667
Unbilled receivables 1,774,792 1,298,404
Tax refund receivable and other receivables 2,462,930 2,845,591
Inventories 8,930,690 10,983,825
Prepaid expenses and other 1,209,910 1,181,091
------------ ------------
Total current assets 21,987,917 23,681,578
------------ ------------
Property and equipment, net 3,896,057 4,184,436
Identifiable intangible assets, net 25,644,008 26,526,264
Goodwill, net 3,761,566 28,601,426
Other 135,387 51,096
------------ ------------
$ 55,424,935 $ 83,044,800
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts payable $ 3,531,706 $ 2,875,706
Accrued expenses and other 4,487,838 3,146,263
Acquisition liability 466,458 702,130
Current portion of credit facility 34,360,000 2,000,000
------------ ------------
Total current liabilities 42,846,002 8,724,099
------------ ------------
Long Term Liabilities:
Deferred income taxes and other 485,287 2,138,657
Credit facility -- 34,600,000
------------ ------------
Total long term liabilities 485,287 36,738,657
------------ ------------
Total liabilities 43,331,289 45,462,756
------------ ------------
Commitments and contingencies
Shareholders' Equity:
Preferred stock, no par value, 1,000,000 shares authorized;
issued and outstanding - none -- --
Common stock, $.10 par value, 10,000,000 shares authorized;
issued and outstanding - 6,778,334 in 2002 and 6,872,334 in 2001 677,833 687,233
Note receivable from officer -- (715,195)
Additional paid-in capital 20,147,277 20,256,774
Accumulated other comprehensive loss (138,516) (194,351)
Retained earnings (deficit) (8,592,948) 17,547,583
------------ ------------
Total shareholders' equity 12,093,646 37,582,044
------------ ------------
$ 55,424,935 $ 83,044,800
============ ============
See Notes to Consolidated Financial Statements
3
KOALA CORPORATION
--------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
------------ ------------ ----------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Sales $ 12,995,171 $ 17,166,594 $ 37,408,172 $ 46,882,077
Cost of sales 9,236,033 10,917,182 24,561,625 28,117,821
------------ ------------ ------------ ------------
Gross profit 3,759,138 6,249,412 12,846,547 18,764,256
Selling, general and administrative expenses 4,524,811 4,858,185 14,196,267 13,913,524
Severance costs -- -- 872,565 --
Amortization of intangibles 316,868 603,344 947,309 1,798,006
------------ ------------ ------------ ------------
Income (loss) from operations (1,082,541) 787,883 (3,169,594) 3,052,726
Other (income) expense:
Interest expense 798,737 763,439 2,226,677 2,404,088
Other (income) expense (336,880) 2,464 (390,534) (41,288)
------------ ------------ ------------ ------------
Income (loss) before income taxes and
cumulative effect of accounting change (1,544,398) 21,980 (5,005,737) 689,926
Income tax provision (benefit) (298,764) 8,242 (703,926) 258,722
------------ ------------ ------------ ------------
Income (loss) before cumulative effect of
change in accounting principle (1,245,634) 13,738 (4,301,811) 431,204
Cumulative effect of change in accounting
principle, net of tax of $2,893,692 -- -- 21,838,717 --
------------ ------------ ------------ ------------
Net income (loss) $ (1,245,634) $ 13,738 $(26,140,528) $ 431,204
============ ============ ============ ============
Net income (loss) per share - basic
Income (loss) before cumulative
effect of accounting change $ (0.18) $ 0.00 $ (0.63) $ 0.06
Cumulative effect of accounting change -- -- (3.20) --
------------ ------------ ------------ ------------
Net income (loss) $ (0.18) $ 0.00 $ (3.83) $ 0.06
============ ============ ============ ============
Net income (loss) per share - diluted
Income (loss) before cumulative
effect of accounting change $ (0.18) $ 0.00 $ (0.63) $ 0.06
Cumulative effect of accounting change -- -- (3.20) --
------------ ------------ ------------ ------------
Net income (loss) $ (0.18) $ 0.00 $ (3.83) $ 0.06
============ ============ ============ ============
Weighted average shares outstanding - basic 6,778,334 6,872,334 6,830,327 6,872,334
============ ============ ============ ============
Weighted average shares outstanding - diluted 6,778,334 6,872,334 6,830,327 6,880,612
============ ============ ============ ============
See Notes to Consolidated Financial Statements
4
KOALA CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
2002 2001
------------ -------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) $(26,140,528) $ 431,204
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 877,490 636,419
Amortization 947,309 1,798,006
Loan forgiveness included in severance costs 619,995 --
Cumulative effect of accounting change 24,732,409 --
Deferred income tax benefit (1,699,861) --
Other 17,298 --
Changes in operating assets and liabilities:
Trade accounts receivable and other receivables 823,503 46,022
Unbilled receivables (474,144) (276,844)
Inventories 2,054,721 112,650
Prepaid expenses and other (117,895) (843,411)
Accounts payable 654,782 (3,245,853)
Acquisition liability (235,672) --
Accrued expenses and other 1,279,743 1,385,281
------------ ------------
Net cash provided by operating activities 3,339,150 43,474
------------ ------------
Cash flows from investing activities:
Capital expenditures (450,603) (630,293)
Patents and other (69,281) (195,289)
------------ ------------
Net cash used in investing activities (519,884) (825,582)
------------ ------------
Cash flows from financing activities:
Net proceeds (payments) on credit facility (2,240,000) 770,000
Payments on capital leases (90,324) --
Purchase of common stock (23,660) --
------------ ------------
Net cash (used in) provided by financing activities (2,353,984) 770,000
------------ ------------
Effect of exchange rate changes on cash and cash equivalents 39,402 26,589
Net change in cash and cash equivalents 504,684 14,481
Cash and cash equivalents at beginning of period -- 200,786
------------ ------------
Cash and cash equivalents at end of period $ 504,684 $ 215,267
============ ============
See Notes to Consolidated Financial Statements
5
KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
1. Unaudited Information:
The accompanying financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all of the
disclosures normally required by accounting principles generally accepted
in the United States or those normally made in the Company's annual Form
10-K filing. Accordingly, the reader of this Form 10-Q should refer to the
Company's 10-K for the year ended December 31, 2001 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. Except as
otherwise described in these notes, all such adjustments are of a normal
and recurring nature. The results of operations for the interim period
ended September 30, 2002 are not necessarily indicative of the results for
a full year.
2. Revenue Recognition
The Company recognizes revenue for the majority of its operations at either
the time its products are shipped, or when installation is complete in
cases where the Company performs the installation services. At SCS
Interactive (included in the Company's modular play equipment segment) the
percentage of completion method of accounting is utilized because the build
to install timeline of its jobs is of longer duration. The percentage of
completion is measured using actual costs compared to total estimated
costs. Revenues from shipping and handling are included in sales. Shipping
and handling costs are included in cost of sales.
3. Inventory:
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventory as of September 30, 2002 and December 31, 2001, consists
of the following:
September 30, 2002 December 31, 2001
------------------ -----------------
Raw materials and component parts $ 3,852,614 $ 6,457,436
Work in process and finished goods 5,078,076 4,526,389
----------- -----------
$ 8,930,690 $10,983,825
=========== ===========
4. Credit Facility:
The Company currently has a $12.5 million revolving credit facility ($8.9
million outstanding at September 30, 2002) and a $25.5 million term loan.
This facility is secured by substantially all of the assets of the Company.
The availability under the revolving credit facility is determined by a
formula based on inventory and accounts receivable balances. At September
30, 2002, the Company had approximately $400,000 available under the
revolving credit facility. There are no compensating balance requirements
and the credit facility requires compliance with financial loan covenants
related to leverage, interest coverage, fixed charges and capital
expenditures. A commitment fee of .50% per annum is payable quarterly in
arrears based on the average daily unused portion of the revolving credit
facility.
6
KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
4. Credit Facility (continued):
The term loan requires payments of $500,000 per quarter for 2002, $1
million per quarter from 2003 to September 26, 2004 when the remaining
balance is due, and requires $2 million in additional principal payments on
April 15, 2003 if the Company meets certain EBITDA targets for 2002. The
Company is also required to obtain $10 million in additional capital by
July 15, 2003, which is to be used to pay down the balance of the term
loan.
The interest rate on the revolving line of credit and the term loan is
variable based upon the bank's prime rate. At September 30, 2002 and
December 31, 2001 the rate was 7.25%.
At September 30, 2002, the Company was in default of the covenants under
the loan agreement. The lenders waived the default. As a result of the
potential for non-compliance with the covenants in future quarters, the
Company has classified the entire balance of the credit facility as a
current liability in accordance with EITF 86-30. The Company has engaged in
discussions with the lenders to further restructure the loan agreement.
5. Earnings per Share:
The following table provides a reconciliation of the numerator and
denominator for earnings per share:
Three Months ended Nine Months ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss) $ (1,245,634) $ 13,738 $(26,140,528) $ 431,204
============ ============ ============ ============
Shares outstanding 6,778,334 6,872,334 6,830,327 6,872,334
Net effect of dilutive options -- -- -- 8,278
------------ ------------ ------------ ------------
Dilutive shares outstanding 6,778,334 6,872,334 6,830,327 6,880,612
============ ============ ============ ============
Options outstanding of 582,011 and 1,044,500 for the three months and
845,745 and 1,031,184 for the nine months ended September 30, 2002 and
2001, respectively, have been excluded from the above calculation because
they were not considered common share equivalents or because their effect
would have been anti-dilutive.
6. Business Segments:
The Company's sales are derived from two business segments: (1) Family
Convenience and Children's Activity Products, and (2) Children's Modular
Play Equipment. The Company's
7
KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
6. Business Segments (continued):
reportable segments are strategic business units that offer different
products. They are managed separately based on the fundamental differences
in the operations.
The Company's convenience and activity products include the flagship
product, the baby changing station ("BCS") which is assembled at the
Company's facilities in Colorado. Other significant products in this
segment are the sanitary paper liners for the BCS, the child protection
seat, the infant seat kradle, the high chair, safety straps for shopping
carts and activity products which are manufactured for the Company
primarily in the United States. These products are sold directly and
through distribution channels, both in the United States and
internationally.
The Company's modular play equipment includes indoor/outdoor play
equipment, including water play equipment, and playground surfacing
materials. The indoor play equipment is custom designed for the customer. A
catalog is used to promote and advertise the outdoor play equipment.
However, custom modifications are often made to accommodate the customers'
needs and desires. These products are manufactured by the Company at its
facilities located in Colorado, British Columbia, Florida and Oregon. The
playground surfacing materials are manufactured by a national network of
sub-contractors. These products are sold directly and through
manufacturers' representatives/dealers both in the United States and
internationally.
The Company evaluates the performance of its segments based primarily on
operating profit before amortization and impairment of intangibles,
corporate expenses and interest income and expense. The Company allocates
corporate expenses to individual segments based on segment sales. Corporate
expenses consist primarily of labor costs of executive management, facility
costs, legal costs, systems costs and shareholder relations costs. The
following table presents sales and other financial information by business
segment:
----------------------------------------------
Three Months Ended September 30, 2002
----------------------------------------------
Convenience Modular
and Activity Play
Products Equipment Total
------------ ------------ -------------
Sales $ 3,599,308 $ 9,395,863 $ 12,995,171
Operating income (loss) 373,746 (1,139,419) (765,673)
Capital expenditures 119,585 56,721 176,306
Total assets 18,388,356 37,036,579 55,424,935
8
KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
6. Business Segments (continued):
----------------------------------------------
Three Months Ended September 30, 2001
----------------------------------------------
Convenience Modular
and Activity Play
Products Equipment Total
------------ ------------ ------------
Sales $ 4,063,332 $13,103,262 $17,166,594
Operating income 712,168 679,059 1,391,227
Capital expenditures 68,349 182,276 250,625
Total assets 18,879,586 71,855,114 90,734,700
----------------------------------------------
Nine Months Ended September 30, 2002
----------------------------------------------
Convenience Modular
and Activity Play
Products Equipment Total
------------ ------------ ------------
Sales $ 10,932,787 $ 26,475,385 $ 37,408,172
Operating income (loss) 728,633 (2,950,918) (2,222,285)
Capital expenditures 313,246 137,357 450,603
Total assets 18,388,356 37,036,579 55,424,935
----------------------------------------------
Nine Months Ended September 30, 2001
----------------------------------------------
Convenience Modular
and Activity Play
Products Equipment Total
------------ ------------ ------------
Sales $11,862,829 $35,019,248 $46,882,077
Operating income 2,323,095 2,527,637 4,850,732
Capital expenditures 288,573 341,720 630,293
Total assets 18,879,586 71,855,114 90,734,700
7. New Accounting Pronouncements:
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 142 "Goodwill and Other Intangible Assets"
and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived
Assets." In accordance with SFAS 142, the Company stopped amortizing
goodwill effective January 1, 2002. The Company has also identified certain
of its trademarks as indefinite lived assets and has ceased amortization of
those assets effective January 1, 2002.
9
KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
7. New Accounting Pronouncements (continued):
In addition, SFAS 142 changes the way the Company evaluates goodwill for
impairment from a discounted cash flow approach to a fair value approach.
Under SFAS 142, the Company is required to split the two segments,
children's activity and convenience products and children's modular play
equipment, into reporting units. Goodwill impairment is evaluated
separately for each reporting unit by comparing the fair value of the
reporting unit with its underlying book value at January 1, 2002 in order
to determine any transitional impairment. For reporting units where the
fair value of the reporting unit was less than its book value, the Company
performed an additional test to determine the amount of the impairment.
This test consisted of determining the fair value of the assets and
liabilities in the reporting unit, adding the book value of the goodwill,
and then comparing that value to the overall fair value determined above.
The impairment amount for goodwill consists of the excess of the detailed
fair values plus goodwill over the fair value of the reporting unit.
As a result of this test, the Company recorded a transitional impairment
charge of $21,838,717 (net of income taxes of $2,893,692) in the second
quarter of 2002, which is shown as the cumulative effect of an accounting
change in the accompanying consolidated statement of operations. The fair
value of the reporting units giving rise to the impairment charge was
estimated by an independent valuation firm using the expected present value
of future cash flows and other methodologies. The impairments were
primarily the result of decreases in operating revenues and cash flows as
compared to forecasts prepared at the dates the respective companies were
acquired.
SFAS 144 requires that the Company evaluate its amortizable identified
intangible assets other than goodwill for impairment based upon
undiscounted future cash flow streams. If an impairment is identified, the
amount of the impairment is determined by comparing the carrying value to
its estimated fair market value. SFAS 142 requires that unamortized
intangible assets be evaluated for impairment by comparing the carrying
amount with its fair value. No impairment has been recognized for these
assets.
Identifiable intangible assets consist of the following:
September 30, 2002 December 31, 2001
------------------------- --------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
Amortized intangible assets:
Patents $10,874,263 $ 1,849,441 $10,806,015 $ 1,309,509
Trade secrets 5,500,000 641,666 5,500,000 504,166
Product designs 10,044,409 1,469,007 10,044,409 1,217,897
Other 201,750 136,200 201,750 114,238
----------- ----------- ----------- -----------
Total $26,620,422 $ 4,096,314 $26,552,174 $ 3,145,810
=========== =========== =========== ===========
Unamortized intangible assets:
Trademarks $ 3,971,799 $ 851,899 $ 3,971,799 $ 851,899
=========== =========== =========== ===========
Amortization expense was $316,868 and $603,344 for the three months ended
September 30, 2002 and 2001, respectively, and $947,309 and $1,798,006 for
the nine months ended September 30, 2002 and 2001, respectively.
10
KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
7. New Accounting Pronouncements (continued):
Estimated amortization expense for each of the following years ending
December 31 is as follows:
2002 $1,268,000
2003 1,260,000
2004 1,243,000
2005 1,240,000
2006 1,240,000
The weighted average amortization period for each of the amortized
intangible assets at September 30, 2002 is as follows:
Patents 15.2 years
Trade secrets 30.0 years
Product designs 30.0 years
Other 8.6 years
Total 23.8 years
The changes in the carrying amounts of goodwill are as follows for the nine
months ended September 30, 2002:
Convenience Modular
and Activity Play
Products Equipment Total
------------ ------------ ------------
Balance as of January 1, 2002 $ 1,001,566 $ 27,599,860 $ 28,601,426
Cumulative effect of accounting change -- (24,732,409) (24,732,409)
Other -- (107,451) (107,451)
------------ ------------ ------------
Balance as of September 30, 2002 $ 1,001,566 $ 2,760,000 $ 3,761,566
============ ============ ============
11
KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
7. New Accounting Pronouncements (continued):
The following table shows the pro forma impact of not amortizing goodwill
and the trademarks in the prior year on income before cumulative effect of
change in accounting principle and earnings per share:
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Reported income (loss) before
cumulative effect of change in
accounting principle $ (1,245,634) $ 13,738 $ (4,301,811) $ 431,204
Add back goodwill amortization -- 204,689 -- 614,067
Add back trademark amortization -- 17,642 -- 52,928
------------- ----------- ------------- -------------
Adjusted income (loss) $ (1,245,634) $ 236,069 $ (4,301,811) $ 1,098,199
============= =========== ============= =============
Basic earnings per share:
Reported income (loss) before
cumulative effect of change in
accounting principle $ (0.18) $ 0.00 $ (0.63) $ 0.06
Goodwill amortization -- 0.03 -- 0.09
Trademark amortization -- 0.00 -- 0.01
------------- ----------- ------------- -------------
Adjusted income (loss) $ (0.18) $ 0.03 $ (0.63) $ 0.16
============= =========== ============= =============
Diluted earnings per share:
Reported income (loss) before
cumulative effect of change in
accounting principle $ (0.18) $ 0.00 $ (0.63) $ 0.06
Goodwill amortization -- 0.03 -- 0.09
Trademark amortization -- 0.00 -- 0.01
------------- ----------- ------------- -------------
Adjusted income (loss) $ (0.18) $ 0.03 $ (0.63) $ 0.16
============= =========== ============= =============
8. Reclassifications:
Certain items have been reclassified in the prior year financial statements
to conform to the current year presentation. These consist primarily of a
reclassification of shipping and handling costs out of revenue and into
cost of sales. These reclassifications had no effect on net income or cash
flows.
12
KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
9. Comprehensive Income:
SFAS 130, Reporting Comprehensive Income, requires the disclosure of
comprehensive income/loss, which includes, in addition to net income
(loss), other comprehensive income (loss) consisting of foreign currency
translation adjustments, which are not included in the traditional
statement of operations. A reconciliation of net income (loss) to
comprehensive income (loss) is as follows:
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss) $ (1,245,634) $ 13,738 $(26,140,528) $ 431,204
Foreign currency translation adjustment 9,426 (17,512) 55,835 (22,130)
------------ ------------ ------------ ------------
Total comprehensive income (loss) $ (1,236,208) $ (3,774) $(26,084,693) $ 409,074
============ ============ ============ ============
10. CEO Resignation:
On April 30, 2002, Mark Betker, the Company's Chief Executive Officer,
resigned from the Company and entered into a Release Agreement that
contains the terms of Mr. Betker's discontinuation of service. The Release
Agreement replaced a Separation Agreement, executed on August 29, 2001,
between Mr. Betker and the Company. Some of the key terms of the Release
Agreement are as follows:
o The Company repurchased from Mr. Betker 14,000 shares of common
stock for $1.69 per share, the closing market price on April 29,
2002.
o The Company agreed to pay Mr. Betker severance of $250,000 over
the 12 month period ending April 30, 2003.
o The Company will forgive a promissory note from Mr. Betker for
$715,195 on the date it becomes due (April 29, 2003) provided
that he remains in material compliance with the terms of the
agreement.
o Mr. Betker returned the 80,000 shares of common stock purchased
with part of the proceeds of the promissory note.
o For a period of two years, Mr. Betker agreed not to compete with
the Company or to solicit any employees of the Company.
o The parties entered into a consulting agreement whereby Mr.
Betker will provide consulting services at the request of the
Board of Directors. To date, no such services have been provided
and no consulting fees have been paid to Mr. Betker.
The Company recorded a pre-tax expense of $872,565 to recognize this
transaction during the second quarter of 2002, of which $619,995 represents
a non-cash charge related to the forgiveness of the note.
13
KOALA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
11. Contingencies:
The Company is currently reviewing the terms and conditions of a contract
and subsequent assignment entered into by its Canadian subsidiary. The
subsidiary has potential obligations related to the original contract. The
Company has not determined whether it has any liability under this
contract.
14
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements that describe our business
and our expectations. All statements, other than statements of historical
fact, included in this report that address activities, events or
developments that we expect, believe, intend or anticipate will or may
occur in the future, are forward-looking statements. When used in this
report, the words "may," "will," "expect," "anticipate," "continue,"
"estimate," "project," "intend," "believe" and similar expressions are
intended to identify forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 regarding events, conditions and financial trends that
may affect our future plan of operations, business, strategy, operating
results and financial position. 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 risks
associated with our significant outstanding indebtedness, including the
potential for additional defaults thereunder; the uncertainties associated
with sales fluctuations, customer order patterns and relationships with
manufacturer's sales representatives; continuing weakness in the economy;
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 we have made and the costs
associated with such acquisitions; dependence on James Zazenski, our chief
operating officer; substantial competition from larger companies with
greater financial and other resources than we have; our dependence on
suppliers for manufacture of some of our products; currency fluctuations
and other risks associated with foreign sales and foreign operations;
quarterly fluctuations in revenues, income and overhead expense; government
regulations including those promulgated by the Consumer Product Safety
Commission; and potential product liability risk associated with our
existing and future products. See "Risk Factors" in our Form 10-K for the
year ended December 31, 2001.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-----------------------------------------------------------------------
Overview
We are 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. Our
sales are derived from two business segments, family convenience and
children's activity products and children's modular play equipment. Our
family convenience and activity products include baby changing stations and
high chairs, activity tables, carpets and foam play products. Children's
modular play equipment includes indoor and outdoor playground equipment,
outdoor playground surfacing and interactive play equipment used in water
parks, family entertainment centers and amusement parks. We intend to
capitalize on the brand name recognition established through our
market-leading Koala Bear Kare Baby Changing Station.
We market and sell our products, systems and custom solutions to a wide
range of businesses and public facilities that serve customers and visitors
who bring children to their establishments. We market our products through
an integrated program of direct sales and distribution through a network of
independent manufacturer's sales representatives and dealers. We are
continually working to expand our sales and marketing efforts through the
addition of manufacturer's sales representatives, dealers and Company sales
representatives.
We recognize revenue for the majority of our operations at either the time
our products are shipped, or when installation is complete in cases where
we perform the installation services. At SCS Interactive (included in our
modular play equipment segment) the percentage of completion method of
accounting is utilized because the build to install timeline of its jobs is
of longer duration. The percentage of completion is measured using actual
costs compared to total
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
estimated costs. Revenues from shipping and handling are included in sales.
Shipping and handling costs are included in cost of sales.
For a discussion of other accounting policies that we believe are material
to our business, see "Critical Accounting Policies and Estimates" in our
Form 10-K for the year ended December 31, 2001.
Our quarterly revenues and net income are subject to fluctuation based on
customer order patterns and our 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.
Results of Operations
Three Months Ended September 30, 2002 compared to Three Months Ended
September 30, 2001 (dollars in thousands).
Sales decreased 24.3% to $12,995 for the third quarter of 2002 compared to
$17,167 for the third quarter of 2001. Convenience and activity product
segment sales decreased to $3,599 for the third quarter of 2002 compared to
$4,063 for the third quarter of 2001. The decrease was due to more products
being sold at lower prices to distributors and to national accounts in
combination with the slower economy. Modular play equipment segment sales
decreased to $9,396 for the third quarter of 2002 compared to $13,103 for
the third quarter of 2001. The decrease was due to continued uncertainty
about the economy exhibited by many customers which has resulted in an
unwillingness to commit to major projects. In addition, a change in sales
representatives at certain of our modular play divisions has negatively
impacted our sales.
Gross profit for the third quarter of 2002 was $3,759 (28.9% of sales)
compared with $6,249 (36.4% of sales) for the third quarter of 2001. The
decrease in gross profit as a percentage of sales was primarily because of
the impact of the lower sales relative to our fixed production costs and
product mix in the modular play segment. During the third quarter, as part
of our plan to reduce inventory balances, we sold products in our modular
play division at or below cost. This decline in gross profit was partially
offset by our overall lower level of costs resulting from the operational
restructuring and workforce reductions we undertook in the fourth quarter
of 2001.
Selling, general and administrative expenses decreased for the third
quarter of 2002 to $4,525 (34.8% of sales) from $4,858 (28.3% of sales) for
the same period in 2001. Sales and marketing expenses decreased $1,032 to
$1,579 for the third quarter of 2002 compared to $2,611 for the third
quarter of 2001. This decrease was due to the lower sales and resulting
lower sales commissions and a focus on cost containment, including selected
employee reductions. General and administrative expenses increased $699 to
$2,946 for the third quarter of 2002 compared to $2,247 for the third
quarter of 2001. The increase in general and administrative expenses was
partially the result of one-time costs related to the settlement of various
disputes, as well as higher auditing and consulting costs, costs associated
with our new Oracle accounting system, and increased rent on our new
facility, partially offset by the employee reductions that we made in the
fourth quarter of 2001 and the second quarter of 2002.
Amortization expense from intangible assets decreased for the third quarter
of 2002 to $317 from $603 for the same period of 2001, primarily because we
stopped amortizing goodwill and certain of our trademarks effective January
1, 2002 with the adoption of SFAS 142. See Note 7 to the condensed
consolidated financial statements for further discussion.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We incurred interest expense of $799 during the quarter ended September 30,
2002 compared to $763 during the quarter ended September 30, 2001. The
increase in interest expense is due primarily to interest expense on our
SCS holdback obligations.
Our effective tax rate is a benefit of approximately 19.3% for the quarter
ended September 30, 2002. The low effective tax rate benefit is due to the
non-deductibility of a portion of the goodwill impairment charge associated
with SCS Interactive and the establishment of a valuation allowance for
deferred tax assets related to a portion of the remaining goodwill
impairment charge. We do not currently believe that it is more likely than
not that these assets will be realized.
Income (loss) before cumulative effect of accounting change decreased in
the third quarter of 2002 to a loss of $(1,246) from income of $14 for the
third quarter of 2001. The change is due primarily to the lower level of
sales and lower margins compared to 2001, partially offset by the employee
reductions that we made in the fourth quarter of 2001 and second quarter of
2002.
Net income (loss) per share (assuming dilution) for the third quarter of
2002 decreased to $(0.18) per share (assuming dilution) compared to $0.00
per share (assuming dilution) for the third quarter of 2001.
Nine Months Ended September 30, 2002 compared to Nine Months Ended
September 30, 2001 (dollars in thousands).
Sales decreased 20.2% to $37,408 for the nine months ended September 30,
2002 compared to $46,882 for the nine months ended September 30, 2001.
Convenience and activity product segment sales decreased to $10,933 for the
nine months ended September 30, 2002 compared to $11,863 for the nine
months ended September 30, 2001. The decrease was due primarily to
increased sales to distributors and national accounts at lower prices in
combination with the slower economy. Modular play equipment segment sales
decreased to $26,475 for the first nine months of 2002 compared to $35,019
for the first nine months of 2001. The decrease was due to continued
uncertainty about the economy exhibited by many customers which has
resulted in an unwillingness to commit to major projects. In addition, a
change in sales representatives at certain of our modular play divisions
has negatively impacted our sales.
Gross profit for the first nine months of 2002 was $12,847 (34.3% of sales)
compared with $18,764 (40.0% of sales) for the first nine months of 2001.
The decrease in gross profit as a percentage of sales was primarily because
of the impact of the lower sales relative to our fixed production costs and
product mix in the modular play segment. During the second and third
quarters of 2002, we sold a significant amount of product at very low
margins as part of our more comprehensive inventory management strategy. We
anticipate that these type of sales could continue throughout 2002 as we
work to reduce our inventory balances. This decline in gross profit was
partially offset by our overall lower level of costs resulting from the
operational restructuring and workforce reductions we undertook in the
fourth quarter of 2001 and second quarter of 2002.
Selling, general and administrative expenses increased for the first nine
months of 2002 to $14,196 (37.9% of sales) from $13,914 (29.7% of sales)
for the same period in 2001. Sales and marketing expenses decreased $1,985
to $4,294 for the first nine months of 2002 compared to $6,279 for the
first nine months of 2001. This decrease was due primarily to the lower
sales and resulting lower sales commissions. General and administrative
expenses increased $2,267 to $9,902 for the nine months ended September 30,
2002 compared to $7,635 for the nine months ended September 30, 2001. The
increase in general and administrative expenses was the result of one-time
costs of approximately $650 as we aggressively worked to settle disputes,
as well as higher auditing, consulting and FAS 142 implementation costs,
costs associated with the implementation of our new Oracle accounting
system, and increased rent on our new facility,
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
partially offset by the employee reductions that we made in the fourth
quarter of 2001 and second quarter of 2002.
As discussed in Note 10 to the condensed consolidated financial statements,
on April 30, 2002, Mark Betker, our Chief Executive Officer, resigned from
the Company and entered into a Release Agreement that contains the terms of
Mr. Betker's discontinuation of service. The Release Agreement replaced a
Separation Agreement, executed on August 29, 2001, between Mr. Betker and
the Company. We recorded a pre-tax expense of $873 to recognize this
transaction during the second quarter of 2002, of which $620 represents a
non-cash charge related to the forgiveness of the note.
Amortization expense from intangible assets decreased for the first nine
months of 2002 to $947 from $1,798 for the same period of 2001, primarily
because we stopped amortizing goodwill and trademarks effective January 1,
2002 with the adoption of SFAS 142. See Note 7 to the condensed
consolidated financial statements for further discussion.
We incurred interest expense of $2,227 during the nine months ended
September 30, 2002 compared to $2,404 during the nine months ended
September 30, 2001. The decrease in interest expense is due to lower
borrowings in the first nine months of 2002 compared to 2001.
Our effective tax rate is a benefit of approximately 14.1% for the nine
months ended September 30, 2002. The low effective tax rate benefit is due
to the non-deductibility of a portion of the goodwill impairment charge
associated with SCS Interactive and the establishment of a valuation
allowance for deferred tax assets related to a portion of the remaining
goodwill impairment charge. We do not believe that it is more likely than
not that these assets will be realized.
Income (loss) before cumulative effect of accounting change was a loss of
$(4,302) for the nine months ended September 30, 2002 compared to income of
$431 for the nine months ended September 30, 2001. The decrease is due
primarily to the lower level of sales compared to 2001, severance and the
higher level of selling, general and administrative expenses discussed
above, partially offset by the employee reductions that we made in the
fourth quarter of 2001.
As discussed in Note 7 to the condensed consolidated financial statements,
we recorded a transitional impairment charge of $21,839 (net of taxes of
$2,894) during the second quarter of 2002 to reflect the implementation of
SFAS 142. The impact of this charge is shown as the cumulative effect of an
accounting change in the consolidated statement of operations.
Net income (loss) per share (assuming dilution) for the nine months ended
September 30, 2002 was $(3.83) per share (assuming dilution) compared to
$0.06 per share (assuming dilution) for the nine months ended September 30,
2001.
Liquidity and Capital Resources (dollars in thousands)
We finance our business activities primarily from cash provided by
operating activities and from borrowings on our credit facility. Cash
provided by operating activities for the nine months ended September 30,
2002 and 2001 was $3,339 and $43, respectively. The increase in cash
provided by operating activities for the nine months ended September 30,
2002 compared to the nine months ended September 30, 2001 is due primarily
to changes in working capital items. Lower accounts receivable and
inventory balances resulted in additional cash from operations in 2002 as
we continued to focus on reducing these balances. In addition, our accounts
payable and accrued liability balances increased in 2002 as we more closely
managed our vendor relationships.
At September 30, 2002 and December 31, 2001, working capital was $(20,858)
and $14,957, and cash balances were $505 and $0, respectively. The decrease
in working capital is due to the reclassification of the credit facility as
short-term as required by EITF 86-30, under which reclassification is
required if the potential exists for non-compliance in future quarters. The
cash
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
balances are low due to our practice of applying all excess cash against
the line of credit to minimize interest expense payable on line of credit
balances.
We have used our operating cash flow and our credit facility primarily for
capital expenditures and working capital. Net cash used in investing
activities was $520 and $826 for the nine months ended September 30, 2002
and 2001, respectively. The decrease in cash used in investing activities
was primarily due to a hightened focus on reducing capital expenditures in
2002, offset by capital expenditures associated with the move into our new
headquarters and manufacturing facility in January 2002 and the
implementation of our new Oracle accounting system.
Net cash used in financing activities was $2,354 in 2002 compared to net
cash provided by financing activities of $770 in 2001. The use of cash in
2002 is primarily due to payments on our revolving credit facility and term
loan. We currently have a $12.5 million revolving credit facility and a
$25.5 million term loan. This facility is secured by substantially all of
our assets. The availability under the revolving credit facility is
determined by a formula based on inventory and accounts receivable
balances. At September 30, 2002, we had approximately $400 available under
the revolving line of credit facility. There are no compensating balance
requirements and the credit facility requires compliance with financial
loan covenants related to leverage, interest coverage, fixed charges and
capital expenditures. A commitment fee of .50% per annum is payable
quarterly in arrears based on the average daily unused portion of the
revolving line of credit.
The term loan requires payments of $500 per quarter for 2002, $1 million
per quarter from 2003 to September 26, 2004 when the remaining balance is
due, and requires $2 million in additional principal payments on April 15,
2003 if we meet certain EBITDA targets for 2002. The interest rate on the
revolving line of credit and the term loan is variable based upon the
bank's prime rate. At September 30, 2002 and December 31, 2001, the rate
was 7.25%.
We have been in non-compliance with certain covenants under our credit
facility at September 30, 2001, December 31, 2001, March 31, 2002 and June
30, 2002. We have obtained waivers of non-compliance subsequent to each
quarter end. These waivers through September 30, 2002 provided for, among
other things, (i) the infusion by July 15, 2003 of $10 million of capital
into the Company, which would be used to reduce the balance outstanding
under our term loan, (ii) extension of the due date of our line of credit
to July 15, 2003, (iii) payment of up to $2 million in additional principal
payments on April 15, 2003 if we meet certain EBITDA targets for 2002, and
(iv) reduction of the total line of credit commitment to $12.5 million to
more accurately reflect our expected level of borrowings. In addition, the
lenders excluded any goodwill impairments from the covenant calculations.
At September 30, 2002, we were again in default of our covenants. On
November 14, 2002, the bank agreed to waive the defaults.
We have engaged in discussions with our lenders regarding a restructuring
of our credit facility. These discussions have included the potential sale
of certain assets of the Company to repay our debt. We are currently
exploring such sales. We expect to continue to be in non-compliance under
the credit facility at each quarter end until we are able to successfully
restructure our credit facility. We have engaged an investment banker to
assist us with raising the additional $10 million of capital, but do not
believe it is feasible at the current time to complete such a transaction.
If we are unable to successfully restructure our loan agreement, the
lenders may take additional steps including forcing us to sell assets,
limiting our borrowing capacity or foreclosure.
Our revolving line of credit and term loan will require significant cash
payments in the future. We have various other contractual obligations,
primarily lease agreements, that also require significant future cash
payments. These obligations have not materially changed from those
disclosed in our report on Form 10-K for the year ended December 31, 2001.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On August 8, 2002, we were notified by Nasdaq that for the last 30
consecutive trading days, the price of the our common stock has closed
below the minimum $1.00 per share requirement for continued inclusion on
The Nasdaq National Market. We had 90 calendar days, or until November 6,
2002, to regain compliance. On September 26, 2002, we received another
notification that we did not meet the Nasdaq minimum market value test. We
applied to transfer to The Nasdaq SmallCap Market and our application has
been approved. We will be listed on the SmallCap Market beginning November
15, 2002. This will give us an additional 180 grace period, until February
4, 2003, to satisfy the continued inclusion requirements for the SmallCap
Market. We may also be eligible for an additional 180 calendar day grace
period, or until August 4, 2003, provided that we meet the initial listing
criteria for the SmallCap Market. Furthermore, we may be eligible to
transfer back to The Nasdaq National Market if, by August 4, 2003, our bid
price maintains the $1.00 per share requirement for 30 consecutive trading
days and we have maintained compliance with all other continued listing
requirements for the National Market.
If we are unable to maintain a Nasdaq listing, investors may find it more
difficult to dispose of, or to obtain accurate quotations as to the market
value of our stock, and our ability to raise capital through the sale of
common stock would be seriously impaired.
Item 4. Controls and Procedures
Based upon an evaluation within 90 days prior to the filing date of this
report, our President and Chief Operating Officer and our Chief Financial
Officer concluded that our disclosure controls and procedures are effective
and sufficient to ensure that material information relating to the Company,
including our consolidated subsidiaries, is made known to them. There have
been no significant changes in our internal controls or in other factors
that could significantly affect our internal controls subsequent to the
date of this evaluation.
20
PART II - OTHER
INFORMATION
Item 1 - 3. None
Item 4. None
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 Certification of James A. Zazenski
Exhibit 99.2 Certification of Jeffrey L. Vigil
(b) Reports on Form 8-K
None.
21
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
KOALA CORPORATION
November 14, 2002 /s/James A. Zazenski
-------------------- --------------------------------------------
President and Chief Operating Officer
(Principal Executive Officer)
November 14, 2002 /s/Jeffrey L. Vigil
-------------------- --------------------------------------------
Vice President Finance and Administration
(Principal Financial and Accounting Officer)
22
CERTIFICATION
I, James A. Zazenski, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Koala
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ James A. Zazenski
------------------------------------------
James A. Zazenski
President and Chief Operating Officer
(Principal Executive Officer)
23
CERTIFICATION
I, Jeffrey L. Vigil, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Koala
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Jeffrey L. Vigil
------------------------------------------
Jeffrey L. Vigil
Vice President Finance and Administration
(Principal Financial and
Accounting Officer)
24
EXHIBIT 99.1
CERTIFICATION OF PERIODIC REPORT
I, James A. Zazenski, President and Chief Operating Officer
(Principal Executive Officer) of Koala Corporation (the "Company"), certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350, that:
(1) the Quarterly Report on Form 10-Q of the Company for the quarterly period
ended September 30, 2002 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Dated: November 14, 2002 /s/ James A. Zazenski
----------------------------------
James A. Zazenski
President and Chief Operating Officer
(Principal Executive Officer)
25
EXHIBIT 99.2
CERTIFICATION OF PERIODIC REPORT
I, Jeffrey L. Vigil, Vice President Finance and Administration
(Principal Financial and Accounting Officer) of Koala Corporation (the
"Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350, that:
(1) the Quarterly Report on Form 10-Q of the Company for the quarterly period
ended September 30, 2002 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Dated: November 14, 2002 /s/ Jeffrey L. Vigil
--------------------------
Jeffrey L. Vigil
Vice President Finance and Administration
(Principal Financial and
Accounting Officer)
26