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Author: koch Three stars, 500 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 197  
Subject: Re: Whacked Date: 4/26/2001 12:26 AM
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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 operating
activities and our acquisitions from cash advanced under our revolving bank line
of 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 to
the year ended December 31, 1999 resulted primarily from funding higher levels
of working capital required to support our growth, primarily inventory and
overpayment of estimated tax installments during 2000.

Working capital as of December 31, 2000 and December 31, 1999 was $19.1
million and $12.6 million, respectively, and cash balances were $.2 million for
both dates. The relatively low cash balances are the result of 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 primarily to expand sales and
marketing activities, acquisition and development of new products, capital
expenditures 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 the
year 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 fixed
assets, intellectual property and an advance to one of our officers related to
the exercise of stock options in 1999.

We increased our secured line of credit with a bank from $15.0 million at
December 1999 to $45.0 million on November 17, 2000. The credit facility matures
March 1, 2003. Loans under the facility are secured by all of our assets. The
interest rate on amounts borrowed under the line of credit is based on the
applicable "Reserve Adjusted LIBOR rate" or the commercial bank's prime rate. At
December 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 outstanding
balance under the credit facility may not exceed 3.5 times consolidated EBITDA
(as defined in the loan agreement), determined quarterly on a four quarter
trailing basis. Based on the December 31, 2000 financial statements, the
aggregate balance available will be $41,000,000, effective March 31, 2001. There
was $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 the
credit facility primarily for acquisitions, the credit facility is also
available for working capital purposes.

We funded the cash portion of the purchase price for both SCS and Fibar
with the revolving credit facility from the bank. These payments were funded
from short-term borrowings under the credit facility. We believe that working
capital provided by our cash flow from operations and our line of credit will be
sufficient to fund our operations for the foreseeable future.


Our backlog of orders is comprised primarily of orders from our customers
in the modular play equipment segment. The amount of backlog at any given point
in time will vary due to customers' seasonal buying patterns and our production
capacity. The backlog of orders was $6.4 million at December 31, 2000 and
approximately $1.0 million at December 31, 1999.

During 2000, we were not materially affected by changing raw materials
prices except for polyethylene prices, which increased materially due to the
increase in costs for all petroleum based products experienced in the United
States during the year.

During 2001, we intend to take a number of steps to address and support our
growth. These steps include planning for and implementing a new information
system that will provide us with the ability to consolidate administrative
functions, hiring additional senior management and planning a move to a new
facility in 2002 that will consolidate manufacturing of some of our product
lines and allow us to vertically integrate certain components that are now being
manufactured by outside suppliers.
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