Hi, BigKryptonite,I think you're right about Koala's acquisitions making sense for growing their business. Certainly for the acquisitions I was aware of, the purchases seemed to be potentially synergetic.As I've said previously, I just think that their balance sheet is being managed with way too much risk. Below, I've copied a chunk of their latest (revised) 10K (source: www.freeedgar.com ). I've highlighted some items in bold. Managment says that they believe they have enough cash and credit to fund operations for the "foreseeable future." This is a lot different from saying, "we can fund our operations because they are profitable now." What happens if their EBITDA keeps dropping? I'm not sure, but it seems that they would violate the conditions of their revolving credit, and be one step closer to chapter 11.My question to you is, "why did they have to grow so quickly?" Who are they racing against, and are they winning?--steve-o(from the 10-K)--------------------------------------------------------------------------------------------------Liquidity and Capital Resources We have financed our operations primarily from cash provided by operatingactivities and our acquisitions from cash advanced under our revolving bank lineof credit. Cash provided by (used in) operating activities for 2000 and 1999 was$(.4) million and $3.7 million, respectively. The decrease in cash provided by(used in) operating activities for the year ended December 31, 2000 compared tothe year ended December 31, 1999 resulted primarily from funding higher levelsof working capital required to support our growth, primarily inventory andoverpayment of estimated tax installments during 2000. Working capital as of December 31, 2000 and December 31, 1999 was $19.1million and $12.6 million, respectively, and cash balances were $.2 million forboth dates. The relatively low cash balances are the result of our practice ofapplying all excess cash against the line of credit to minimize interest expensepayable on line of credit balances. We have used our operating cash flow primarily to expand sales andmarketing activities, acquisition and development of new products, capitalexpenditures and working capital. Net cash used in investing activities was$23.6 million for the year ended December 31, 2000, and $26.6 million for theyear ended December 31, 1999. In 2000, $22.3 million was used to purchase SCS 16<PAGE>and Fibar. The balance was primarily devoted to capital expenditures for fixedassets, intellectual property and an advance to one of our officers related tothe exercise of stock options in 1999. We increased our secured line of credit with a bank from $15.0 million atDecember 1999 to $45.0 million on November 17, 2000. The credit facility maturesMarch 1, 2003. Loans under the facility are secured by all of our assets. Theinterest rate on amounts borrowed under the line of credit is based on theapplicable "Reserve Adjusted LIBOR rate" or the commercial bank's prime rate. AtDecember 31, 2000 the LIBOR rate was 9.19% while the bank's prime rate was 9.5%,compared to 8.18% and 8.5% at December 31, 1999. The aggregate outstandingbalance under the credit facility may not exceed 3.5 times consolidated EBITDA(as defined in the loan agreement), determined quarterly on a four quartertrailing basis. Based on the December 31, 2000 financial statements, theaggregate balance available will be $41,000,000, effective March 31, 2001. Therewas $38.0 million outstanding under the credit facility as of December 31, 2000,and $14.0 million outstanding as of December 31, 1999. Although we have used thecredit facility primarily for acquisitions, the credit facility is alsoavailable for working capital purposes. We funded the cash portion of the purchase price for both SCS and Fibarwith the revolving credit facility from the bank. These payments were fundedfrom short-term borrowings under the credit facility. We believe that workingcapital provided by our cash flow from operations and our line of credit will besufficient to fund our operations for the foreseeable future. Our backlog of orders is comprised primarily of orders from our customersin the modular play equipment segment. The amount of backlog at any given pointin time will vary due to customers' seasonal buying patterns and our productioncapacity. The backlog of orders was $6.4 million at December 31, 2000 andapproximately $1.0 million at December 31, 1999. During 2000, we were not materially affected by changing raw materialsprices except for polyethylene prices, which increased materially due to theincrease in costs for all petroleum based products experienced in the UnitedStates during the year. During 2001, we intend to take a number of steps to address and support ourgrowth. These steps include planning for and implementing a new informationsystem that will provide us with the ability to consolidate administrativefunctions, hiring additional senior management and planning a move to a newfacility in 2002 that will consolidate manufacturing of some of our productlines and allow us to vertically integrate certain components that are now beingmanufactured by outside suppliers.
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