SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ----------------------
                                   FORM 10-KSB

  X       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----     EXCHANGE ACT OF 1934

          For the fiscal year ended December 31, 1999

          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-----     SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number: 0-22464

                                KOALA CORPORATION
                              (Name of Small Business Issuer in Its Charter)

            Colorado                                         84-1238908
 (State of Other Jurisdiction of                          (I.R.S. Employer
 Incorporation or Organization)                          Identification No.)


                         11600 East 53rd Avenue, Unit D
                             Denver, Colorado 80239
                    (Address of Principal Executive Offices)

                                 (303) 574-1000

                (Issuer's Telephone Number, Including Area Code)

       Securities Registered Under Section 12(b) of the Exchange Act: None

         Securities Registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.10 par value
                                (Title of Class)

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 issuer was  required  to file such  reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                               _X_ Yes   ___ No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. _______

State the issuer's revenues for its most recent fiscal year:  $37,134,712

As of February 11, 2000, the aggregate  market value of the voting stock held by
nonaffiliates  of the issuer  computed by  reference to the last quoted price at
which such stock sold on such date as reported by the Nasdaq National Market was
approximately $71,253,000.

As of February 11, 2000, there were outstanding 6,397,128 shares of the issuer's
Common Stock, $.10 par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  Proxy  Statement  for its 2000 Annual  Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-KSB.

                                       1
<PAGE>
                                     PART I


ITEM 1.   DESCRIPTION OF BUSINESS

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, those discussed in "Risk Factors" below.


                                    BUSINESS

     Koala Corporation ("Koala" or the "Company"), a Colorado corporation,  is a
leading  designer,  producer and  worldwide  marketer of  innovative  commercial
products,  systems and custom solutions that create  attractive  family-friendly
environments for businesses and other public venues. The Company produces family
convenience products, such as baby changing stations and high chairs; children's
activity products,  such as activity tables, carpets and foam play products; and
children's  modular play  equipment.  The Company intends to capitalize on brand
name  recognition  established  through its  market-leading  Koala Bear  Kare(R)
Baby's  Changing  Station.  The Company's  sales have grown from $3.8 million in
1993 to $37.1 million in 1999. Net income has grown from $1.0 million in 1993 to
$5.1 million in 1999.

     The Company  markets its 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.  The Company's  customers  include Walt
Disney World, The Mayo Clinic, Target Stores, McDonalds,  Pizza Hut, Burger King
franchises  and many other  customers in the retail,  health care,  supermarket,
entertainment  venue and numerous  other markets.  Management  believes that the
Koala Bear Kare brand is widely recognized among family-friendly  businesses and
their customers.

     The Company provides  high-quality products with design features that cater
to the needs of its  customers.  The Company  believes that  competition  in its
various product categories is fragmented and that Koala benefits from offering a
broad  selection of branded  products to its customers.  The Company  intends to
continue  providing  family-friendly  products,  systems  and  custom  solutions
through  strategic  initiatives  including:  capitalizing on brand  recognition;
maximizing market penetration;  acquiring complementary businesses and products;
maintaining  low cost,  high quality  production;  developing  new solutions and
enhanced products; and expanding its international marketing.

     The Company has completed  several  acquisitions of complementary  business
and products in 1998 and 1999. On December 16, 1998,  the Company  purchased the
assets of Park  Structures,  a manufacturer  and marketer of outdoor  children's
modular play equipment.  Park Structures  sells its products to  municipalities,
parks, public and private schools, day care centers and private developers. Park
Structures(TM) outdoor modular play equipment complements the Company's existing
line of children's indoor modular play equipment,  and the acquisition  provides
additional market  opportunities for the Company.  In 1999, the Company acquired
the assets of two businesses.  Superior Foam & Polymers,  Inc. ("Superior Foam")
was purchased on March 26, 1999 and Smart Products,  Inc. ("Smart Products") was
purchased  on  September  24,  1999.  Superior  Foam  manufactures  and  markets
children's  foam activity  products to amusement  parks,  water parks,  shopping
malls and retail  stores.  Smart Products  manufactures  and  distributes  child
safety and  parental  convenience  products  to grocery  stores,  retailers  and
restaurants.


History

     The Company's  predecessor was formed in 1987 to produce and market a newly
designed baby changing  station.  This product has formed the foundation for the
Company's growth,  and the Company believes that it is the market leader in baby
changing station products in terms of units sold.  During the 1990's,  Koala has
developed from a single product  company into a diversified  designer,  producer
and marketer of family convenience  products,  children's  activity products and
children's  modular play equipment.  The Company introduced the Child Protection
Seat in 1991 and the Infant Seat Kradle in 1993. In 1994,  the Company  acquired
the rights to the Booster  Buddy(TM)  booster  seat.  The Company  commenced its
offering of children's activity systems in 1996,  following the acquisition of a
producer of activity products. This acquisition initiated the development of the
Koala Kare(TM) System, which allows businesses to create custom activity systems
to suit individual space  requirements and customer needs. The Company continued
to expand its product  offerings  in 1997  through  new  product  introductions,
including the Koala Highchair, and the acquisition of Delta

                                       2
<PAGE>
Play, a custom manufacturer of creatively themed, modular indoor children's play
systems.  With the  acquisition of Park  Structures in 1998, the Company entered
the outdoor  children's  modular play market.  The acquisitions of Superior Foam
and  Smart  Products  in 1999  added  complementary  products  to the  Company's
convenience and activity product segments.  As a result of the Company's product
diversification  efforts,  the Baby Changing  Station,  while continuing to be a
growth opportunity for the Company, represented less than one-quarter of Koala's
sales in 1999.


Industry Overview

     The Family Convenience and Children's Activity Market. The Company believes
that parents  increasingly  travel, shop and dine out with their children due to
societal changes and demographic  trends,  including the strict time constraints
of  two-income  and  single  parent  households.  A March 1998  national  market
research study  conducted for the Company by the Howell  Research Group reported
that seven out of ten parents  (68%)  interviewed  shopped  with their  children
either all the time (27%) or most of the time (41%). According to the study, the
impact of child-friendly  facilities is very positive. The majority of women and
a large number of the men  interviewed,  who shopped at  child-friendly  stores,
shopped  more  frequently  and spent  more time and money at these  stores.  The
Company  believes that businesses  increasingly  need to create an accommodating
and positive  environment for children in order to attract  customers,  increase
sales and create customer loyalty. The Company has developed and acquired family
convenience  and  children's  activity  products to help  businesses  meet these
needs.

     The  United  States  Department  of Justice  estimates  that there are over
5,000,000  public  facilities  in the United  States of the type targeted by the
Company for its bathroom family convenience  products.  These facilities include
restaurants,  retail stores and shopping centers. The Company estimates that the
market for its children's  activity  products includes  approximately  1,500,000
facilities.  The Company  currently targets over 160 categories of facilities to
purchase its family  convenience  and children's  activity  products,  including
quick service restaurants,  airports, stadiums, convention centers, supermarkets
and other retail establishments.

     The Children's  Modular Play Market.  The children's modular play market is
comprised  of indoor and  outdoor  areas for child  play.  Customers  for indoor
children's  modular  play  equipment  include many of the same  businesses  that
purchase family  convenience  and children's  activity  products,  such as quick
service  restaurants,  shopping malls, day care centers and family entertainment
centers.  The Company believes that many of the same  demographic  trends in the
family  convenience  and  children's  activity  segments are driving  demand for
indoor children's modular play products. In addition,  the Company believes that
customers increasingly are looking for theming and custom-designed  equipment in
order to create a unique family-friendly atmosphere for their businesses.

     The children's  outdoor  modular play market for products  produced by Park
Structures  includes  municipalities  and other  governmental  agencies,  parks,
public  and  private  schools,  day  care  centers,   developers  and  apartment
complexes.  The Company  believes  that this market has expanded for a number of
reasons.  In general,  as cities across the United States have grown,  the trend
has been to provide their  constituents  with better public services,  including
playground  equipment in public parks and recreation  centers.  Also, unlike the
products of Park  Structures,  many  existing  outdoor play  structures  are not
accessible to people with  disabilities  or the  structures or their  underlying
surfaces do not comply with current safety codes. In addition,  wood structures,
which were popular in the 1970s and 1980s,  are not as popular  today because of
safety and maintenance  concerns and because they tend to deteriorate over time.
Therefore,  the Company  believes  that  municipal  risk managers and others who
control  the buying  decisions  regarding  outdoor  play  systems are seeking to
replace or expand their existing equipment.


Business Strategy

     The Company's primary business  objective is to grow its sales and earnings
by  continuing  to develop as a leading  provider of  family-friendly  products,
systems and solutions.  The Company's key strategic  initiatives  are summarized
below.

     Capitalize on Brand Name  Recognition.  The Company believes that the Koala
Bear Kare(R) brand name has achieved significant recognition with businesses and
their  customers  through the  reputation  of its Koala Bear Kare Baby  Changing
Station.  The Company  intends to continue  to leverage  this brand  recognition
through the marketing of its other family  convenience  and children's  activity
products and children's modular play systems under the Koala Bear Kare name.

     Maximize  Market  Penetration.  The Company intends to continue to increase
market  penetration  through  an  integrated   marketing  effort  that  includes
manufacturer's  representative  and dealer sales,  direct sales, trade shows and
trade magazine  advertising.  In 1999, the Company expanded its direct telesales
capabilities  due to the success of a pilot program  conducted in late 1998. The
Company  also  intends to expand the cross  selling of its  products  to new and
existing  customers and to expand the categories of facilities that purchase its
products.

                                       3
<PAGE>
     Acquire Complementary  Businesses and Products. The Company has established
a formal acquisition program and regularly evaluates strategic acquisitions as a
means of adding  complementary  businesses  and product  lines.  The Company has
completed several acquisitions and believes that there are more opportunities to
acquire  products or business lines that would  complement  current  operations,
expand  current  product  offerings  and  provide  additional  opportunities  to
leverage the Company's marketing efforts.

     Maintain Low Production  Costs and High Quality.  The Company has a "buy or
build"   philosophy  that  seeks  to  maintain  low  production   costs  without
compromising  quality.  As a result, a substantial  portion of its manufacturing
and assembly  functions  currently are outsourced,  and certain design functions
are handled by the Company.  The Company  believes that outsourcing to qualified
suppliers where  appropriate  enables it to focus its resources on marketing and
sales while  maintaining  quality  control  through  frequent  contacts with its
suppliers.

     Develop New  Solutions.  Koala seeks to develop new  solutions  in order to
meet  customer  expectations  and expand its  business.  For example,  the Koala
Highchair  was  designed  and  developed  with  unique  features  in response to
restaurants'  concerns about the  cleanliness  and ease of use provided by their
existing  highchairs.  The Company also continually seeks to improve and enhance
its existing products and systems in response to customer needs.

     Expand International  Marketing.  The Company sells its products worldwide.
Sales to customers  outside of North America have increased from 12% of sales in
1996 to 14% of sales in 1999.  The Company  intends to continue the expansion of
its  international  marketing  activities by adding  dealers and locating  Koala
employees in selected markets around the world to supervise  international sales
activity.  In addition,  the Company plans to increase its  international  sales
through increased cross-selling of its products and the marketing of the outdoor
modular play equipment of Park Structures.

Products

     The Company currently markets its products in two product segments:  family
convenience  and  children's  activity  products,  and  children's  modular play
equipment  products.  These products are sold to businesses and other  customers
located in all 50 states and in approximately 50 foreign countries.

     Family Convenience and Children's Activity Products.  The Company currently
markets the following family convenience  products:  the Koala Bear Kare(R) Baby
Changing Station, the Koala Bear Kare Child Protection Seat, the Koala Bear Kare
Infant Seat Kradle,  the Booster  Buddy(TM) booster seat and the Koala Bear Kare
Highchair.  The Company also markets disposable sanitary paper liners to be used
with its Baby Changing  Stations.  All of these products,  except for the Infant
Seat  Kradle and the  sanitary  paper  liners,  are  constructed  out of durable
polyethylene plastic and are highly resistant to accidental damage or vandalism.
With the acquisition of Smart Products,  the Company added complementary  infant
safety and customer service products including shopping cart seats,  highchairs,
and SmartStrapTM child protection straps.

     The Company's  children's  activity products consist of the Koala Bear Kare
Block and Maze Activity  Table,  Koala Bear Kare Wonder Wall and Koala Bear Kare
Activity Center Carpet. These products,  which include  manipulative  activities
and  colorful  blocks,  letters,  numbers and  designs,  are designed for use in
commercial  waiting areas of businesses  such as grocery  stores,  auto dealers,
retail  stores,  physicians and other  professional  services  providers.  These
products are solidly  constructed  to withstand  heavy use and include  hygienic
maintenance  features.  The Company markets these products individually or under
the name Koala  Kare(TM)  Systems.  The Koala Kare Systems  allow  businesses to
create  custom  activity  systems  to suit  individual  space  requirements  and
customer needs. These systems range from individual  activity tables in doctor's
offices to large  children's  activity or play areas in supermarkets  comprising
several  thousand  square feet where  children  are  supervised  in a controlled
environment.  Selected  activity  products with  interactive  video machines and
other  interactive  products  create a children's  activity  setting that allows
parents to shop while their  children  are  entertained  and educated in a safe,
clean and  child-friendly  environment.  The  acquisition of Superior Foam added
complementary  children's  foam activity  products to the  Company's  children's
activity segment.

     Children's  Modular Play Equipment.  The Company  currently markets modular
and custom themed children's indoor play equipment.  The Company works with each
individual  customer to create and produce custom  designs that use  traditional
modular components such as tunnels, walkways, ladders and ball pits either alone
or in  combination  to create a themed  environment  such as a pirate's  ship or
jungle tree house.  These products are designed for use in family  entertainment
centers,  quick-service  restaurants and shopping malls. The acquisition of Park
Structures in 1998 has expanded the Company's  product offerings into children's
outdoor  modular  play  equipment.   The  Park  Structures   division   designs,
manufactures   and  markets  modular  and  custom  outdoor  play  equipment  for
municipalities  and other  governmental  agencies,  parks,  public  and  private
schools,   day  care  centers,   developers   and  apartment   complexes.   Park
Structures(TM)  products  consist  of  traditional  modular  outdoor  playground
equipment such as decks,  elevated  climbing areas and slides.  These components
are available in a wide variety of sizes,  configurations and color options. The
Park   Structures   division   custom  designs  its  systems  to  meet  customer
requirements.

                                       4
<PAGE>
Marketing and Sales

     Family  Convenience  and  Children's   Activity  Products.   The  Company's
marketing  strategy  for its  family  convenience  and child  activity  products
consists  of  extending  the Koala Bear  Kare(R)  brand  name,  introducing  new
concepts and creating new groups of customers for its products around a theme of
Happy Faces in Public  PlacesTM.  The Company uses a combination of dealer sales
and direct sales to market these products.

     Since 1995, the Company has increased its marketing  budget in an effort to
increase  sales of its products to a wider target  market.  In 1997, the Company
expanded  its  distribution  network,  which  consists of  manufacturer's  sales
representatives and dealers.  The manufacturer's sales  representatives  promote
the  Company's  products to the dealers,  who  purchase  the  products  from the
Company and resell them to customers. The manufacturer's representatives receive
commissions  from the  sale of the  Company's  products.  Most  dealers  are not
granted any exclusive  rights for products or  territory.  The products of Smart
Products are sold mostly through  manufacturer's  representatives and dealers as
well. Dealer sales have accounted for a minority of the Company's domestic sales
and a majority of the Company's foreign sales.

     International  dealers  currently are served by factory sales  managers who
are  experienced in  international  sales.  The Company  intends to continue the
expansion  of its  international  marketing  activities  by adding  dealers  and
locating  Koala  employees  in selected  markets  around the world to  supervise
international  sales  activity.  In addition,  the Company plans to increase its
international  sales  through  increased  cross-selling  of its products and the
marketing of the outdoor modular play equipment of Park Structures.

     The Company's direct sales program targets national  accounts who prefer to
buy  directly  from  manufacturers  and other end users  that do not  qualify as
national  accounts or are not served by dealers.  Superior Foam's unique product
offerings are sold by the  Company's  direct sales staff.  In 1999,  the Company
broadened  its direct  sales  capabilities  with the  expansion  of its KoalaTel
telesales    division.    The   expansion   included   capital   investment   in
state-of-the-art  telecommunications  and data  equipment  designed for managing
telesales programs.

     The Company supports its marketing and sales activities  through attendance
at numerous  national and  international  industry trade shows in various market
segments.  The Company also invests in focused advertising in trade magazines to
promote  its  products to  potential  customers.  The theme of this  advertising
identifies the  advantages to potential  customers in being  family-friendly  to
promote increased business through increased customer loyalty.

     The Company conducts an active public relations  program aimed at providing
information  about the concept of being  family-friendly  and  illustrating  the
benefits of the Company's family  convenience and children's  activity  products
for  existing  and  prospective   customers.   The  Company   assists   industry
publications  in creating  editorial  content or news stories about the emerging
trends around  families'  decisions  where to shop,  eat or visit.  In addition,
Company sales  managers  host  educational  seminars for decision  makers at key
industry trade shows.

     Children's Modular Play Equipment. The Company markets and sells its custom
indoor  modular play  equipment  through  trade show  attendance,  trade journal
advertising  and  regular  contact  by Company  salespeople  with  designers  of
projects   in  various   markets.   Park   Structures   sells   nationwide   and
internationally  through a network of approximately  40 independent  dealers and
through an in-house sales person who covers six counties in South Florida.  Park
Structures'  marketing  programs  include  attendance  at national  industry and
regional trade shows, a focused media advertising  campaign,  incentive programs
designed to stimulate  growth and the  publication of a catalogue  depicting the
products and capabilities of Park Structures.


Design and Manufacturing

     The Company  has a "buy or build"  philosophy  that seeks to  maintain  low
production costs either through  outsourcing or using Company personnel where it
is more  cost-effective and does not compromise  quality. As a result, a portion
of its  manufacturing  and assembly  functions  currently  are  outsourced.  The
Company  believes that  outsourcing  to qualified  suppliers  where  appropriate
enables it to focus its  resources  on  marketing  and sales  while  maintaining
quality control through frequent contacts with its suppliers.

     Family  Convenience and Children's  Activity  Products.  Koala develops the
concepts for its family convenience and children's activity products in response
to the needs of its customers.  Following development of prototypes, the Company
outsources  the design of the tooling for the  production  of these  products to
independent  designers.  Product designs are incorporated into molds and tooling
owned by the  Company.  The  Company  provides  these  molds and  tooling to its
suppliers in connection with the manufacture of the Company's  products.  In the
manufacturing  process,  components  are molded to the Company's  specifications
using various plastic molding processes,  assembled and delivered to the Company
for shipment to customers.  The Company uses a number of  manufacturers  for its
products.  The Company believes that alternative sources of supply are available
for these products if necessary.

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<PAGE>
     The  Company's  foam  products  are  manufactured  through  the  use  of  a
proprietary  manufacturing  process at its plant  located  near  Austin,  Texas.
Unique  designs  are  sculpted  through  the use of foam and are  coated  with a
proprietary  coating and application  technique to create a highly  customizable
and colorful  product.  The  manufacturing  process requires minimum training of
Company personnel and utilizes readily obtainable materials.

     Children's  Modular Play Equipment.  The Company's  design engineers custom
design its  children's  indoor  modular play systems using computer aided design
technologies  applied  to  modular  components.  The  Company  owns  all  of the
significant molds and tooling used in the manufacture of specialized  components
used in the play equipment. Components for these systems are manufactured to the
Company's  specifications  and  purchased  from  outside  vendors.  The  Company
fabricates  certain  metal and  fiberglass  components at its plant located near
Vancouver,  British Columbia, Canada. These components are then assembled by the
Company at the plant and shipped to customers.

     The Company custom designs its children's  outdoor play systems by applying
computer  aided  design   technologies  to  modular   components.   The  Company
subcontracts  the plastic  molding,  fabrication  and plastisol  coating of deck
platforms and aluminum casting to outside  subcontractors.  The Company owns all
of the significant molds and tooling for these functions. The Company fabricates
the  majority of the steel  playground  parts and  assembles  its  modular  play
equipment at its plant located in Coral Springs,  Florida.  The Company believes
there are alternative  sources of supply for the manufacture of the modular play
equipment components.


Competition

     Family Convenience and Children'  Activity  Products.  The Company's family
convenience  products are marketed to commercial customers and not to consumers.
Presently,  the  commercial  products  division of Newell,  Inc. and a number of
other  companies sell family  convenience  products to the  commercial  markets.
Management  believes that such  competition has not had a material impact on the
Company.  The Company is not aware of any companies  marketing  diaper  changing
stations  intended for the  commercial  market that have a greater  market share
than the Company.  The Company believes that there is an under-served market for
family convenience products.  Koala believes that it is the only company focused
on marketing a wide  variety of family  convenience  products to the  commercial
market.  The Company  believes  that its Koala Bear Kare(R)  products have brand
name  recognition  that  provides  the Company  with a  significant  competitive
advantage.  The  Company  competes  principally  on  the  basis  of  brand  name
recognition, quality, customer service and price.

     Competition  in the children's  activity  product area is mainly from small
businesses that make similar products and from efforts by individual  businesses
to create their own activity areas.  The Company competes in this market through
its ability to offer custom  designed  products to its customers under its Koala
Kare(TM)  Systems program and on the basis of product  quality and service.  The
Company's  foam  products  are unique  and the  Company  believes  that no other
competitor offers a soft, yet durable composition to the product.

     Children's Modular Play Equipment. Competition in children's indoor modular
play  equipment is primarily  from Little Tikes  Commercial  Play Systems,  Inc.
("Little  Tikes"),  a  unit  of  Rubbermaid  Incorporated,   Miracle  Recreation
Equipment  Company and, to a lesser  extent,  a number of other  companies.  The
Company  competes in the  children's  indoor modular play market on the basis of
quality,  safety,  service  and its  ability  to  provide a custom  themed  unit
designed to meet the unique needs of the  customer.  Competition  in  children's
outdoor  modular play equipment is primarily from Game Time,  Inc., a subsidiary
of PlayCore,  Inc., Miracle Recreation Equipment Company,  Landscape Structures,
Inc. and Little Tikes. The Company believes that Park Structures competes on the
basis of design, quality, safety, price and customer service.


Product Warranties and Insurance

     For its family convenience and children's  activity  products,  the Company
provides a replacement  guarantee for one year from purchase  protecting against
damage from natural  disasters or vandalism,  subject to a $100 deductible.  The
Company also provides a five year limited  warranty on parts and labor  covering
any defects in  workmanship.  For its  children's  modular play  equipment,  the
Company  provides  warranties  ranging from a one year limited warranty on parts
and labor  covering  defects in  workmanship  to a lifetime  warranty on certain
metallic parts. The Company has experienced minimal returns and warranty claims.
The Company  carries product  liability  insurance in an amount that the Company
deems adequate. Product liability claims against the Company and Park Structures
to date have been immaterial.

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<PAGE>
Patents and Trademarks

     The Company has registered  various  trademarks,  including the "Koala Bear
Kare(R)"  name and  several  variations  of the  Koala  Bear  Kare logo that are
featured on the Company's products.  The Company believes that the various Koala
Bear Kare trademarks are widely recognized and important to the Company. Each of
the Company's products marketed under this trademark  prominently display a blue
and white  sticker with one of the  Company's  trademarks.  The Company has also
registered  the  trademark  "Booster  Buddy(TM)"  and  the  registration  of the
trademarks "Delta Play(TM)" and "Happy Faces in Public Places(TM)" currently are
being sought. In addition to Park Structures registered  trademark,  the Company
also believes that it has proprietary rights to its play equipment designs.

     The  Company  holds both  utility  and design  patents  for  certain of its
products. These patents prevent competitors from duplicating the design elements
of the  Company's  products,  but the Company does not believe that such patents
provide significant barriers to entry.

Regulation

     Certain of the Company's  products are subject to the  provisions of, among
other laws, the Federal  Consumer  Product Safety Act and the Federal  Hazardous
Substances  Act  (the  "Acts"),   which  empower  the  Consumer  Product  Safety
Commission  (the  "CPSC") to require  the repair,  replacement  or refund of the
purchase  price of products  that  present a  substantial  risk of injury to the
public, and in the event the CPSC finds that no feasible consumer product safety
standard  under the Acts would  adequately  protect  the  public,  to order such
product banned. The CPSC may also issue civil and criminal penalties for knowing
violations of the Acts. Any such  determination  by the CPSC is subject to court
review. Similar laws exist in some states and cities in the United States and in
many jurisdictions throughout the world.

     The Company's  modular play equipment is designed and inspected to meet the
safety guidelines of the CPSC and the American Society for Testing and Materials
("ASTM")  for  commercial  playground  systems.  The Company  conducts  in-house
testing  and  inspection  to  ensure  that  they  comply  with the CPSC and ASTM
guidelines.  Park  Structures is a member of the  International  Play  Equipment
Manufacturers   Association  ("IPEMA"),  a  member  driven  international  trade
organization  that represents and promotes an open market for  manufacturers  of
playground equipment. Park Structures also performs its manufacturing operations
in conformance  with the quality  control  standards  required by ISO 9001. Park
Structures received ISO 9001 certification in February 2000.

     The Company's operations in the United States do not involve  manufacturing
or other  activities  that would subject it to laws and  regulations  concerning
environmental  issues.  The  Company's  assembly  plant  in  Vancouver,  British
Columbia  performs  light  fabrication  activities  utilizing  paint,  metal and
fiberglass.  The Company has obtained  the  necessary  permits to conduct  these
activities, and the Company believes that they have been conducted in compliance
with Canadian  environmental  laws and regulations.  Park Structures  engages in
manufacturing  and assembly  operations at its leased  facility in Florida.  The
Company believes that the Park Structures operations are conducted in compliance
with federal and state environmental laws and regulations.


Employees

     The Company had approximately 260 full-time employees at December 31, 1999,
with  approximately  200 located in the United  States and 60 located in Canada.
The  Company's  United  States  employees  are  not  covered  by any  collective
bargaining  agreements.  The Company's Canadian employees are represented by the
International Wood and Allied Workers of Canada ("IWA"). A collective bargaining
agreement was signed in May 1999,  effective  February 1999 for a two-year term.
Management believes that relations with its employees are good.


Foreign Operations

         The  Company  acquired  the  assets of Delta  Play,  a  Canadian  based
provider of modular play equipment,  in June 1997. The Company created a foreign
subsidiary to own and operate this business. The subsidiary's sales,  marketing,
administrative,  manufacturing and distribution functions are decentralized. The
President  of  Delta  Play  reports  to an  executive  officer  of the  Company.
Strategic   planning,   market  development  and  resource  allocation  are  the
responsibility  of  the  President  in  conjunction  with  the  Company's  Chief
Executive  Officer.  The  Company  believes  that  there  is  no  greater  known
significant risk attendant to the business  conducted by the foreign  subsidiary
than to that of the Company's domestic operations.

                                       7
<PAGE>
                                  RISK FACTORS

     In addition to the other  information  contained in this Form  10-KSB,  the
following risk factors should be considered  carefully in evaluating the Company
and its business. This Form 10-KSB contains certain  forward-looking  statements
that involve substantial risks and uncertainties. When used in this Form 10-KSB,
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 (the  "Securities  Act") and Section 21E of the Securities  Exchange
Act of 1934 (the  "Exchange  Act")  regarding  events,  conditions and financial
trends  that may  affect  the  Company's  future  plan of  operations,  business
strategy, operating results and financial position.

Management of Growth

     The Company has recently experienced significant growth both internally and
as a result of  acquisitions.  A continuing  period of significant  growth could
place a strain on the Company's management,  operations and other resources. The
Company's  ability to manage its growth will require it to continue to invest in
its  operational,  financial  and  information  systems and to attract,  retain,
motivate and  effectively  manage its employees.  The inability of the Company's
management to effectively  manage growth could have a material adverse effect on
the  Company's  business,  financial  condition and results of  operations.  See
"Business."

Risks Associated with Acquisition Strategy

     An integral  part of the  Company's  business  strategy is to acquire other
companies,  assets or product  lines  that  complement  or expand  its  existing
business.  Acquisitions  involve a number of risks that could materially  affect
the Company, including the diversion of management's attention, the assimilation
of the operations and personnel of the acquired  companies,  the amortization of
acquired  intangible  assets  and the  potential  loss of key  personnel  of the
acquired companies.  Future acquisitions may entail the payment of consideration
in excess of book value, may result in the issuance of additional  shares of the
Company's  Common Stock or the  incurrence  of additional  indebtedness,  all of
which could have a dilutive  effect on the  Company's  net income per share.  In
addition,  products  offered by the Company  following a future  acquisition may
have lower gross profit margins than the Company's current product lines.  There
can be no assurance that any acquisition by the Company will not have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  The Company  currently  has no agreements  or  understandings  with
respect to any potential acquisitions. See "Business--Business Strategy."

Product Liability Risks

     The Company's products are designed for use with infants and children.  The
children's  modular  play  equipment  industry,  which the Company has  recently
entered,  may be  subject  to  greater  number  of claims  than the  convenience
products industry.  The Company carries product liability insurance in an amount
that  management  deems  adequate to cover risks  associated  with its products.
There can be no assurance,  however,  that existing or future insurance coverage
will be sufficient to cover all product  liability  risks or that such insurance
will be available at favorable rates.  Defending a product liability claim could
significantly divert management's attention. A partially or completely uninsured
claim against the Company,  if successful,  could have a material adverse effect
on the Company's business,  financial  condition and results of operations.  See
"Business--Product Warranties and Insurance."

Competition

     The markets for the Company's  products are highly  competitive and include
numerous domestic and foreign competitors, including well-known manufacturers of
consumer and  commercial  child safety  equipment,  furniture and other juvenile
products that are substantially larger and have greater financial, marketing and
other  resources than the Company.  There can be no assurance  there will not be
new  entrants  into the  Company's  markets or that the Company  will be able to
compete successfully in the future. See "Business--Competition."

Dependence Upon Key Personnel

     The  Company's  future  success  will  depend  to a great  extent  upon the
continued  service of certain  senior  management  personnel  and the  Company's
continuing ability to attract, assimilate and retain highly qualified personnel.
Competition  for such  personnel is intense,  and there can be no assurance that
the Company can retain its key personnel or that it can attract,  assimilate and
retain such employees in the future. Although the Company has non-disclosure and
non-compete  agreements  with many of its  employees,  including  its  executive
officers,  it does  not have  employment  agreements  with any of its  executive
officers. The Company maintains a key-person life insurance policy in the amount
of $1 million on Mark A.  Betker,  its  Chairman,  Chief  Executive  Officer and
President.  The loss of the services of Mr. Betker or other key personnel or the
inability  to hire or retain  qualified  personnel  in the  future  could have a
material  adverse effect upon the Company's  business,  financial  condition and
results of operations.

                                       8
<PAGE>
Dependence Upon Outside Manufacturers

     A  large  number  of  the  components   for  the  Company's   products  are
manufactured to the Company's specifications by outside suppliers. The Company's
ability to assemble  and  distribute  its  products  depends upon its ability to
obtain an adequate uninterrupted supply of component parts. Although the Company
owns the significant  tooling and molds used in the manufacture of the Company's
products,  it does not  have any long  term  agreements  or  contracts  with its
suppliers,  most of which are the single source of supply to the Company.  While
the  Company  believes  that  adequate  alternative  sources  of  supply of such
component  parts  could  be  located,   there  can  be  no  assurance  that  any
interruption in the supply of such component parts to the Company because of the
failure of a supplier,  a change to a new supplier or otherwise would not have a
material  adverse  effect on the  Company's  business,  financial  condition  or
results of operations.  Moreover, if the Company's tooling or molds are damaged,
the Company could suffer additional delays and costs until such tooling or molds
are  repaired  or  replaced.  Although  the Company  has  business  interruption
insurance to protect itself against such  interruptions,  such insurance may not
prevent  such  interruptions  from  having a material  adverse  effect  upon the
Company's  business,   financial  condition  and  results  of  operations.   See
"Business--Design and Manufacturing."

Risks Associated with International Operations

     As part of its growth  strategy,  the Company is seeking  opportunities  to
further expand its products and systems distribution into international markets.
Sales to customers  outside of North America  accounted for approximately 14% of
the Company's sales in 1999. In addition,  the Company  operates a manufacturing
and assembly  facility in Vancouver,  British  Columbia,  Canada.  The Company's
international  operations are subject to a wide range of general business risks,
including:  fluctuations in currency exchange rates; unexpected changes in legal
and  regulatory  requirements;  export  restrictions,  tariffs  and other  trade
barriers;  political and economic  instability;  restrictions on repatriation of
funds or profits from foreign  markets;  longer  payment  cycles and problems in
collecting   accounts   receivable;   difficulty  in  protecting  the  Company's
intellectual   property;   potentially   adverse  tax  consequences,   including
limitations  on the Company's  ability to claim a foreign tax credit against its
U.S.  federal income taxes;  and regulation by foreign  regulatory  authorities.
These and other factors  associated  with  international  operations  may have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

     The Company is subject to the Foreign Corrupt Practices Act ("FCPA"), which
generally prohibits U.S. companies and their intermediaries from bribing foreign
officials for the purpose of obtaining or keeping  business.  The Company may be
exposed to liability  under the FCPA as a result of past or future actions taken
without  the  Company's  knowledge  by  dealers  and other  intermediaries.  Any
liability the Company incurs under the FCPA could be material.

Government Regulations

     Certain of the  Company's  products  are subject to the  provisions  of the
Federal  Consumer  Product Safety Act and the Federal  Hazardous  Substances Act
(the "Acts") and the regulations promulgated thereunder.  The Acts authorize the
Consumer  Product  Safety  Commission  (the  "CPSC") to protect  the public from
products  that present a  substantial  risk of injury.  The CPSC can require the
repurchase  or  recall by the  manufacturer  of  articles  which are found to be
defective and impose fines or penalties on the manufacturer.  Similar laws exist
in some states and cities and in other  countries  in which the Company  markets
its products. Any recall of its products could have a material adverse effect on
the Company.  To date,  the Company has not recalled  any of its  products.  See
"Business--Regulation."

Trademarks; Lack of Patent Protection

     The Company owns several trademarks, including the Koala Bear Kare(R) logo,
to identify  the Company and its  products  and  believes  that such  trademarks
provide a significant  competitive  advantage.  Although the Company  intends to
vigorously  defend its  trademarks,  no assurance  can be given either that such
trademarks  can be defended  or that such  trademarks  will not become  commonly
used. Further, although the Company has design patents that cover the design and
appearance  of certain of its  existing  products,  such patents may not provide
meaningful  protection  against entry by competitors into the Company's markets.
See "Business--Patents and Trademarks."

Variability of Quarterly Operating Results

     The  Company's  sales and  earnings may  fluctuate  from quarter to quarter
based on  several  factors  such as the  number of new  commercial  construction
starts,  production  delays,  public budget processes,  supply costs and general
economic  conditions.  Demand for the Company's  products can vary significantly
from quarter to quarter due to revisions  in customer  budgets or schedules  and
other factors beyond the Company's control. Due to all of the foregoing factors,
it is possible that in some future period,  the Company's  results of operations
could fall below the expectations of securities analysts and investors.  In this
event,  the  market  price of the Common  Stock  could be  materially  adversely
affected.

                                       9
<PAGE>
Limited Diversification; Uncertainty of Acceptance of New Products

     A  substantial  amount of the  Company's  sales since  inception  have been
derived from  marketing the Koala Bear Kare(R) Baby Changing  Station.  Although
the Company has  diversified  through the addition of other  family  convenience
products, children's activity products and children's modular play equipment and
plans to introduce additional products,  the Baby Changing Station will continue
to be an important  component of the Company's sales.  Until the Company further
diversifies its business and products,  changes in competition and other factors
affecting the market for the Baby Changing Station could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition,  the  possibility  exists that any new products  introduced  by the
Company in the future will not be accepted in the marketplace.  If this happens,
the  Company's  reputation  may suffer,  and the  Company may incur  substantial
losses  due  to  production,   marketing  and  other  costs.  See  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
"Business--History" and "--Products."


ITEM 2.    DESCRIPTION OF PROPERTIES

     The Company  leases  approximately  5,000  square feet for its direct sales
operation  and  15,000  square  feet of office  and  warehouse  space in Denver,
Colorado for sales,  receiving and shipping  operations.  These leases expire in
2001.  The Company  leases a 67,000  square foot plant near  Vancouver,  British
Columbia,  where it conducts its indoor modular play equipment manufacturing and
assembly operations. This lease expires in 2003. The Company's manufacturing and
assembly  operations of its outdoor  modular play equipment are conducted from a
leased 90,000 square foot facility in Coral Springs, Florida. This lease expires
in 2002, with two options to renew the lease for additional five-year terms. The
Company's  Smart Products  division  operates out of a leased 25,000 square foot
facility in Charlotte,  North  Carolina.  This lease  expires in 2001.  The foam
activity  products are  manufactured  at a leased  11,000  square foot  facility
located near Austin,  Texas,  with a lease  expiration date in 2001. The Company
believes that its facilities are adequate for its current needs.


ITEM 3.    LEGAL PROCEEDINGS

     The Company has been a party to  litigation  in the ordinary  course of its
businesses. The Company does not believe that any current litigation will have a
material  adverse  effect upon its business,  financial  condition or results of
operations.


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       There were no matters which were submitted to a vote of security  holders
during the fourth quarter of the fiscal year ended December 31, 1999.



                                       10
<PAGE>
                                     PART II

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


The Common Stock of the Company trades on the Nasdaq  National  Market under the
symbol KARE. The following table sets forth, for the periods indicated, the high
and low sales prices for the Company's  Common Stock for each quarter within the
last two fiscal  years as reported  by Nasdaq,  adjusted  for the 2-for-1  stock
split  effected as a 100% stock dividend on October 28, 1999.  These  quotations
reflect inter-dealer prices, without retail markup,  markdown or commissions and
may not represent actual transactions.

                                                           SALES PRICE
                                                           -----------
                                                       LOW              HIGH
                                                       ---              ----
YEAR ENDED DECEMBER 31, 1998

First quarter ..............................         $ 7              $ 9 3/8

Second quarter .............................         $ 7 7/8          $ 10 1/16

Third quarter ..............................         $ 6 7/16         $ 8 7/16

Fourth quarter .............................         $ 5              $ 9 1/4

YEAR ENDED DECEMBER 31, 1999

First quarter ..............................         $ 8 5/8          $ 12 1/8

Second quarter .............................         $ 9 5/8          $ 14 1/8

Third quarter ..............................         $ 11 3/8         $ 15 3/8

Fourth quarter .............................         $ 12 1/4         $ 17 29/32


         As of February 11, 2000, there were  approximately  108 shareholders of
record.

         The  Company has never paid cash  dividends  on its Common  Stock.  The
Company's  credit agreement  contains a restrictive  covenant that prohibits the
payment of dividends without the lender's consent. The Company currently intends
to retain any earnings for use in its operations and does not anticipate payment
of cash dividends in the foreseeable future.

ITEM 6.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS

     With the exception of historical matters,  the matters discussed herein are
forward-looking statements that involve risks and uncertainties. Forward-looking
statements include,  but are not limited to, statements  concerning  anticipated
trends in sales and net  income,  the mix of the  Company's  sales,  projections
concerning  operations  and available  cash flow.  The Company's  actual results
could  differ  materially  from the results  discussed  in such  forward-looking
statements.  Factors that could cause or contribute to such differences  include
those  discussed  below,  as well as  those  discussed  in  "Risk  Factors"  and
elsewhere in this Form 10-KSB.

Koala Overview

     Koala Corporation is a leading designer, producer and worldwide marketer of
innovative  commercial  products,  systems  and  custom  solutions  that  create
attractive family-friendly  environments for businesses and other public venues.
The Company produces family convenience products, such as Baby Changing Stations
and highchairs;  children's activity products,  such as activity tables, carpets
and foam play  products,  and  children's  modular play  equipment.  The Company
intends  to  capitalize  on  brand  name  recognition  established  through  its
market-leading  Koala Bear Kare(R) Baby Changing  Station.  The Company's  sales
have grown from $3.8  million  in 1993 to $37.1  million in 1999.  Sales for the
year ended December 31, 1999  represented a 94% increase from the same period in
1998.  Net income has grown from $1.0  million in 1993 to $5.1  million in 1999.
Net income for the year ended December 31, 1999  represented a 64% increase from
the same period in 1998.

                                       11
<PAGE>
     The Company  markets its 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.  Koala markets its products  through an
integrated  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.
In 1999, the Company broadened its direct sales  capabilities with the expansion
of its KoalaTel telesales division. The expansion included capital investment in
state of the art  telecommunications  and data  equipment  designed for managing
telesales programs.

     The Company's sales have been 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(TM) seats. One of the Company's strategies has been to
reduce its  dependence on Baby Changing  Stations  through the  acquisition  and
development of  complementary  products.  In  furtherance of this strategy,  the
Company  acquired  the assets of a  manufacturer  of  commercial-use  children's
activities products in March 1996, the assets of Delta Play, Ltd., a provider of
custom children's indoor modular play equipment in June 1997, the assets of Park
Structures,  a producer of children's outdoor modular play equipment in December
1998, the assets of Superior Foam, a  manufacturer  of children's  foam activity
products in March 1999 and Smart Products,  a provider of children's  safety and
parental   convenience  products  in  September  1999.  As  a  result  of  these
acquisitions   and  introduction  of  new  products,   Baby  Changing   Stations
represented less than one-quarter of the Company's sales in 1999.

     The  Company's  gross profit  margins are affected by product mix, with the
Baby Changing Station and other family  convenience  products and the children's
activity  products  typically  providing  higher gross  profit  margins than the
children's  modular play  equipment.  The  children's  modular  play  equipment,
however,  has higher  average  selling  prices and  contributes to the Company's
sales growth. In addition, sales made through dealers provide lower gross profit
margins than direct sales due to the expense  associated with the manufacturer's
sales  representatives  and  dealers.  To the extent that the  Company  acquires
additional  companies or product  lines,  its gross profit  margins may be lower
than those currently  achieved from sales of the Company's current product lines
due to a number of factors that may include products with higher average selling
prices but lower gross margin percentages. Although new product introductions or
acquisitions may decrease the overall gross profit margins, the Company believes
that the  addition  of new  products  will  provide  opportunities  for  revenue
diversification and increased  profitability,  while also reducing the Company's
reliance on the Baby Changing Station.

Components of Sales and Expense

     The Company recognizes sales at the time its products are shipped.  Cost of
sales consists of components  manufactured  for the Company and direct labor and
manufacturing  overhead incurred by the Company.  With the exception of the foam
activity products,  all major components for the family convenience products and
children's activity products currently are manufactured and assembled by outside
vendors.  Direct labor and manufacturing  overhead relate to the assembly of the
modular play products and the manufacture of the foam activity products.

     Selling,   general  and   administrative   expense  consists  primarily  of
commissions  paid to  manufacturer's  sales  representatives  and other  selling
expenses,   executive,   sales  and  office  salaries,  related  payroll  taxes,
advertising  expenses and depreciation on office equipment and computer hardware
and software.

     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.

                                       12
<PAGE>
Results of Operations

     The following  table sets forth certain  income  statement data stated as a
percentage of sales:

                                                    Years Ended December 31,
                                                    ------------------------
                                                       1999         1998
                                                       ----         ----

Sales .............................................   100.0%       100.0%

Cost of sales .....................................    48.7         45.2
                                                      -----        -----
Gross profit ......................................    51.3         54.8

Selling, general and administrative expenses ......    25.5         28.7

Amortization of intangibles .......................     2.6          1.6
                                                      -----        -----
Operating income ..................................    23.2         24.5

Interest expense ..................................     2.4          0.0

Other (income) expense ............................     0.0         (0.4)
                                                      -----        -----
Income before provision for income taxes ..........    20.8         24.9

Provision for income taxes ........................     7.1          8.7
                                                      -----        -----
Net income ........................................    13.7%        16.2%
                                                      =====        =====

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

         Sales increased 94.4%, or $18.0 million,  to $37.1 million for the year
ended  December 31, 1999 compared to $19.1  million for the year ended  December
31, 1998. A majority of the increase resulted from sales of outdoor modular play
equipment,  foam activity products and safety and parental  convenience products
included in product  lines  acquired in 1998 and 1999.  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 81.8%, or $8.5 million, to $19.0 million for the
year ended  December  31,  1999  compared  to $10.5  million  for the year ended
December 31, 1998. As noted above,  the majority of the increase in gross profit
resulted  from  sales  of  products  of  the  newly  acquired  businesses.  As a
percentage of sales,  gross profit  decreased in the 1999 period compared to the
1998 period primarily  because of a change in product mix that included a higher
proportion of sales of children's modular play equipment.

     Selling,  general  and  administrative  expense  increased  72.6%,  or $4.0
million to $9.5 million for the year ended  December  31, 1999  compared to $5.5
million  for the year ended  December  31,  1998.  Sales and  marketing  expense
increased 52.7%, or $1.8 million to $5.4 million for the year ended December 31,
1999 compared to $3.6 million for the year ended  December 31, 1998.  These cost
increases were  primarily due to the inclusion of the sales and marketing  costs
of the newly  acquired  businesses  noted  above.  Higher  expenses  for various
marketing  programs  and  salaries  of  sales  and  marketing   personnel  added
subsequent  to the 1998 period also  contributed  to the  increase.  General and
administrative  expense increased  109.2%, or $2.1 million,  to $4.1 million for
the year ended  December  31, 1999  compared to $1.9  million for the year ended
December 31, 1998.  Once again,  the  increase was  primarily  the result of the
inclusion of the newly acquired businesses in late 1998 and 1999.

     Amortization expense from intangible assets increased from $297,600 in 1998
to $958,524 in 1999.  This  increase is  primarily  due to the  amortization  of
goodwill and other  identifiable  intangible assets acquired in the purchases of
Park Structures in late 1998, and Superior Foam and Smart Products in 1999.

                                       13
<PAGE>
     The Company  utilized debt to finance  portions of the acquisitions of Park
Structures,  Superior Foam and Smart Products. As a result, the Company incurred
interest  expense  of  $902,169  in  1999.  All of the debt  financing  activity
occurred in 1999. The Company did not have any interest expense in 1998.

     The  Company's  effective  tax rate was 34.0% and 35.0% for the year  ended
December  31,  1999  and  1998,  respectively.  The  decrease  in the  Company's
worldwide  effective  rate was primarily due to an increase in export sales that
qualify for the  benefit  provided by the  foreign  sales  corporation  that the
Company established in February 1998.

     Net income increased  64.2%, or $2.0 million,  to $5.1 million for the year
ended December 31, 1999 compared to $3.1 million for the year ended December 31,
1998.  As a  percentage  of sales,  net income  declined  during the 1999 period
compared  to  the  1998  period  primarily  due  to the  inclusion  of a  larger
proportion of the children's modular play equipment line in the product mix. Net
income per share (diluted)  increased 30.0%, or $.18, to $.78 for the year ended
December 31, 1999  compared to $.60 for the year ended  December  31, 1998.  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 1,318,065 shares
in the weighted average number of shares  outstanding.  All share quantities and
per share  amounts have been  adjusted for the effect of the 2-for-1 stock split
that occurred on October 28, 1999.


Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

         Sales increased  40.2%, or $5.5 million,  to $19.1 million for the year
ended  December 31, 1998 compared to $13.6  million for the year ended  December
31, 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  29.4%,  or $2.4 million,  to $10.5 million for the
year  ended  December  31,  1998  compared  to $8.1  million  for the year ended
December 31, 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  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  29.6%,  or $1.3
million to $5.5 million for the year ended  December  31, 1998  compared to $4.2
million  for the year ended  December  31,  1997.  Sales and  marketing  expense
increased 42.1%, or $1.1 million to $3.6 million for the year ended December 31,
1998 compared to $2.5 million for the year ended  December 31, 1997.  These cost
increases  were due to the  inclusion  of the  children's  indoor  modular  play
equipment line and higher expenses for various marketing  programs,  commissions
paid to manufacturer's sales representatives and salaries of sales and marketing
personnel added subsequent to the 1997 period, all of which were associated with
higher levels of sales.  General and administrative  expense increased 11.6%, or
$200,470,  to $1.9 million for the year ended December 31, 1998 compared to $1.7
million for the year ended  December 31, 1997.  The increase was  primarily  the
result of the inclusion of the children's indoor modular play equipment line.

     The  Company's  effective  tax rate was 35.0% and 35.5% for the year  ended
December  31,  1998  and  1997,  respectively.  The  decrease  in the  Company's
worldwide  effective  rate was  primarily  due to the  benefit  provided  by the
foreign sales corporation that the Company established in February 1998.

     Net income increased 27.2%, or $663,000, to $3.1 million for the year ended
December 31, 1998 compared to $2.4 million for the year ended December 31, 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
24.0%,  or $.12,  to $.60 for the year ended  December 31, 1998 compared to $.48
for the year ended December 31, 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  101,714  shares in the  weighted  average  number of shares
outstanding.  All share  quantities and per share amounts have been adjusted for
the effect of the 2-for-1 stock split that occurred on October 28, 1999.


Liquidity and Capital Resources

     The Company has  historically  financed its business  activities  primarily
from  cash  provided  by  operating  activities.   Cash  provided  by  operating
activities  for 1999 and 1998 was $3.7 million and $1.7  million,  respectively.
The  increase  in cash  provided  by  operating  activities  for the year  ended
December  31,  1999  compared  to the year  ended  December  31,  1998  resulted
primarily  from a $2.0  million  increase in net income year to year,  offset by
funding the higher levels of working  capital  required to support the growth of
the  current  businesses  and  support  the  expansion  of  the  newly  acquired
businesses.

                                       14
<PAGE>
     Working  capital as of December  31, 1999 and  December  31, 1998 was $12.6
million and $8.7 million,  respectively,  and cash balances were $.2 million and
$6.5 million, respectively, at the same dates. The lower cash balance in 1999 is
the result of the  Company's  practice of applying  all excess cash  against the
line of credit to minimize  interest expense payable on line of credit balances.
The 1998  ending cash  balance was higher than normal  because of the receipt of
the proceeds from the Company's secondary offering in late December 1998.

     The Company has used its operating  cash flow primarily to expand sales and
marketing  activities,  acquisition  and  development  of new products,  capital
expenditures  and working  capital.  Net cash used by investing  activities  was
$26.6 million in 1999, and $1.4 million for the year ended December 31, 1998. In
1999, $25.4 million was used to purchase the assets of Park Structures, Superior
Foam  and  Smart  Products.   The  balance  was  primarily  devoted  to  capital
expenditures,   including   approximately   $400,000   for   the   purchase   of
telecommunications  equipment  for  the  expansion  of  the  Company's  KoalaTel
telesales  division.  This is the  principal  reason  for the  decrease  in cash
balances at December 31, 1999.

     The Company  obtained a $15.0 million secured line of credit from a bank in
December  1998. The credit  facility has a term of three years.  Loans under the
facility are secured by all of the assets of the Company.  The interest  rate on
amounts  borrowed under the line of credit is based on the  applicable  "Reserve
Adjusted  LIBOR  rate",  which was 8.18% at  December  31,  1999.  There were no
amounts  outstanding  under the credit  facility as of December  31,  1998,  and
$13,979,000 outstanding as of December 31, 1999.

     The Company  funded the initial  $13.5 million cash portion of the purchase
price  for the Park  Structures  acquisition  through a  combination  of the net
proceeds from the secondary public offering in December 1998 (approximately $4.8
million after deducting underwriting fees), existing cash balances and a portion
of the $15.0 million  revolving  credit facility from a bank. The seller of Park
Structures also received an additional $4.0 million in cash (and $1.5 million in
Common Stock) due to certain earn-out targets that were achieved during 1998 and
1999. These payments were funded primarily from short-term  borrowings under the
new credit  facility.  The Company believes that the working capital provided by
its line of credit and cash flow from  operations will be sufficient to fund its
operations for the foreseeable future.

Year 2000

     Historically, certain computerized systems have used two digits rather than
four to identify the year.  Computer equipment and software,  as well as devices
with imbedded  technology,  that are dependent on time or date  information  may
recognize a date using "00" as the year 1900 rather than the year 2000, possibly
resulting in a range of problems,  from simple  miscalculations  to total system
failures. This problem is generally referred to as the "Year 2000" issue.

     The Company has  assessed its  exposure to risks  associated  with the Year
2000  issue in terms of  "internal"  issues  (systems  and  equipment  which the
Company owns or controls), and "external" issues (systems and equipment of third
parties with whom the Company does business).

     As of February 16, 2000, there were no material Year 2000 issues noted with
any of the Company's  computer systems,  or to the Company's  knowledge,  to any
third party that the  Company  does  business  with.  No costs were  expected or
accrued in prior  financial  statements,  and no additional  material  costs are
expected to be incurred or accrued relating to the "Year 2000" issue.

New Accounting Standards

     None


ITEM 7.    FINANCIAL STATEMENTS

             See Financial Statements beginning on page F-1.


ITEM 8.   CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

           Not applicable

                                       15
<PAGE>
                                    PART III


ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

       The information required by Item 9 is incorporated herein by reference to
the Company's proxy statement for its 2000 Annual Meeting of Shareholders, which
will be filed with  Securities  and Exchange  Commission  within 120 days of the
Company's fiscal year ended December 31, 1999.
ITEM 10. EXECUTIVE COMPENSATION

       The information  required by Item 10 is incorporated  herein by reference
to the Company's  proxy  statement for its 2000 Annual Meeting of  Shareholders,
which will be filed with Securities and Exchange  Commission  within 120 days of
the Company's fiscal year ended December 31, 1999.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       The information  required by Item 11 is incorporated  herein by reference
to the Company's  proxy  statement for its 2000 Annual Meeting of  Shareholders,
which will be filed with Securities and Exchange  Commission  within 120 days of
the Company's fiscal year ended December 31, 1999.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       The information  required by Item 12 is incorporated  herein by reference
to the Company's  proxy  statement for its 2000 Annual Meeting of  Shareholders,
which will be filed with Securities and Exchange  Commission  within 120 days of
the Company's fiscal year ended December 31, 1999.

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K


Exhibit
              Description
     No.
       3.1     Articles of Incorporation  of Koala  Corporation (5) 3.2Bylaws of
               Koala Corporation (5) 4.1Specimen Common Stock Certificate (1)
      10.1     Incentive Stock Option Plan dated August 19, 1993 (1)
      10.2     Koala   Corporation  1995  Stock  Option  Plan,  as  amended  (5)
               Industrial Lease dated August 1, 1996 between Buckhead Industrial
               Properties, Inc. and Koala
      10.3     Corporation (2)
      10.4     Credit Agreement with U.S. Bank National Association (4)
      10.5     Agreement  for Sale and  Purchase  of Assets  dated June 23, 1997
               between Delta Play, Ltd., et al and Koala Corporation (3)
      10.6     Registration  Rights  Agreement dated June 23, 1997 between Delta
               Play,  Ltd.,  and Koala  Corporation  (4)
      10.7     Agreement  for Sale and  Purchase of Assets dated August 14, 1998
               between Park Structures, Inc. et al and Koala Corporation (5)
      10.8     Indenture  dated March 31, 1998 among  Vanac  Development  Corp.,
               Delta Play Company and Koala Corporation
      10.9     Form of  Revolving  Credit  Agreement,  dated  December 16, 1998,
               between Koala Corporation and U.S. Bank National Association (5)
      10.10    Agreement  for Sale and  Purchase of Assets dated March 26, 1999,
               by and among  Superior  Foam & Polymers,  Inc James T. New,  Jr.,
               Kevin C. Brown and Koala Corporation (6)
      21.1     Subsidiaries
      23.1     Consent of Independent Auditors
      27.1     Financial Data Schedule

----------

                                       16
<PAGE>
(1)  Incorporated  by  reference  to the  exhibits  included  in  the  Company's
     Registration Statement on Form SB-2, Registration No. 33-68482C.
(2)  Incorporated by reference to Exhibit 10.11 of the Company's Form 10-KSB for
     the year ended December 31, 1996.
(3)  Incorporated  by reference to Exhibit 2.1 of the Company's Form 8-K/A filed
     on September 8, 1997.
(4)  Incorporated  by reference to Exhibit 4.1 of the Company's Form 8-K/A filed
     on September 8, 1997.
(5)  Incorporated  by  reference  to the  exhibits  included  in  the  Company's
     Registration Statement on Form SB-2, Registration No. 333-61551.
(6)  Incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on
     April 2, 1999.

(b)      Reports on Form 8-K

       On October 8, 1999, the Company filed a Form 8-K reporting Items 2 and 7.
Pro forma financial statements were not required.




                                       17
<PAGE>


                                   SIGNATURES

In accordance  with Section 13 of the  Securities  and Exchange Act of 1934, the
registrant  caused  this report on Form 10-KSB to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                KOALA CORPORATION

Date:  February 17, 2000       By:   /s/ Mark A. Betker
       -----------------            -------------------
                                   Mark A. Betker, Chairman,
                                   Chief Executive Officer and President

Date:  February 17, 2000       By:   /s/ Jeffrey L. Vigil
       -----------------            ---------------------
                                       Jeffrey L. Vigil
                                   Vice President of Finance and Administration
                                   (Principal Financial and Accounting Officer)



In accordance  with the Exchange Act, this report on Form 10-KSB has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated:

         Signature         Title                               Date
         ---------         -----                               ----

/s/ Mark A. Betker         Chairman, Chief Executive Officer   February 17, 2000
------------------------   and President (Principal Executive
Mark A. Betker             Officer)and Director


/s/ Michael C. Franson     Director                            February 17, 2000
------------------------
Michael C. Franson


/s/ John T. Pfannenstein   Director                            February 17, 2000
------------------------
John T. Pfannenstein


/s/ Ellen Robinson         Director                            February 17, 2000
------------------------
Ellen Robinson



                                       18
<PAGE>
                                KOALA CORPORATION
                        CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1999 AND 1998

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                          Page
                                                                          ----

            Report of Independent Auditors                                 F-2

            Consolidated Balance Sheets                                    F-3

            Consolidated Statements of Income                              F-4

            Consolidated Statements of Changes in Shareholders' Equity     F-5

            Consolidated Statements of Cash Flows                          F-6

            Notes to Consolidated Financial Statements                     F-7






                                      F-1
<PAGE>


SHAREHOLDERS AND
BOARD OF DIRECTORS
KOALA CORPORATION
DENVER, COLORADO

                         REPORT OF INDEPENDENT AUDITORS

We  have  audited  the  accompanying   consolidated   balance  sheets  of  KOALA
CORPORATION (a Colorado  corporation)  as of December 31, 1999 and 1998, and the
related consolidated  statements of income, changes in shareholders' equity, and
cash  flows  for the  years  then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of KOALA CORPORATION
at December 31, 1999 and 1998,  and the  consolidated  results of its operations
and its cash flows for the years  then  ended,  in  conformity  with  accounting
principles generally accepted in the United States.



ERNST & YOUNG LLP
Denver, Colorado

February 1, 2000




                                      F-2
<PAGE>

KOALA CORPORATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS


                                                                                  December 31,
                                                                              1999           1998
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
                                        ASSETS
                                        ------
Current Assets
  Cash and cash equivalents ..........................................   $    173,936    $  6,493,570
  Accounts receivable, trade (less allowance for doubtful accounts
     of $131,030 in 1999 and $111,144 in 1998) .......................      9,234,685       5,781,256
  Inventories ........................................................      5,137,791       3,581,137
  Prepaid expenses and other .........................................      1,249,384         838,109
                                                                         ------------    ------------
     Total current assets ............................................     15,795,796      16,694,072
                                                                         ------------    ------------
Property and equipment, net ..........................................      3,213,980       2,432,114
Identifiable intangible assets (net of accumulated amortization
  of $1,371,326 in 1999 and $754,882 in 1998) ........................     18,709,242      13,464,224
Goodwill (net of accumulated amortization
  of $381,019 in 1999 and $38,939 in 1998) ...........................     10,839,282       9,014,790
                                                                         ------------    ------------
                                                                         $ 48,558,300    $ 41,605,200
                                                                         ============    ============

                          LIABILITIES & SHAREHOLDERS' EQUITY
                          ----------------------------------
Current Liabilities:
  Accounts payable ...................................................   $  2,210,583    $  1,721,886
  Accrued expenses ...................................................        955,731         375,219
  Current portion of long term debt ..................................           --         5,865,043
                                                                         ------------    ------------
     Total current liabilities .......................................      3,166,314       7,962,148
                                                                         ------------    ------------

Long Term Liabilities:
  Deferred income taxes and other ....................................      1,086,270         645,000
  Credit facility (note 3) ...........................................     13,979,000            --
  Long term debt, net of current portion (note 4) ....................           --        11,502,271
                                                                         ------------    ------------
     Total long term liabilities .....................................     15,065,270      12,147,271
                                                                         ------------    ------------

Total liabilities ....................................................     18,231,584      20,109,419
                                                                         ------------    ------------

Commitments and contingencies (note 7)

Shareholders' Equity:
  Preferred stock, no par value, 1,000,000 shares authorized;
     no shares issued and outstanding ................................           --              --
  Common stock, $.10 par value, 10,000,000 shares authorized;
     issued and outstanding (6,397,128 in 1999 and  5,694,724 in 1998)        639,713         569,472
  Common stock to be issued (154,236 shares in 1998) .................           --         1,297,903
  Note receivable from officer .......................................       (383,505)           --
  Additional paid-in capital .........................................     14,596,294       9,335,438
  Accumulated other comprehensive income (loss) ......................        (31,038)       (121,160)
  Retained earnings ..................................................     15,505,252      10,414,128
                                                                         ------------    ------------
 Total shareholders' equity ..........................................     30,326,716      21,495,781
                                                                         ------------    ------------
                                                                         $ 48,558,300    $ 41,605,200
                                                                         ============    ============
</TABLE>
                 See notes to consolidated financial statements

                                       F-3
<PAGE>
KOALA CORPORATION
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME

                                                      Years ended December 31,
                                                        1999           1998
                                                   ------------    ------------
<S>                                                <C>             <C>
Sales ..........................................   $ 37,134,712    $ 19,100,765
Cost of sales ..................................     18,092,588       8,627,979
                                                   ------------    ------------
Gross profit ...................................     19,042,124      10,472,786
                                                   ------------    ------------

Selling, general and administrative expenses ...      9,467,210       5,485,198
Amortization of intangibles ....................        958,524         297,600
                                                   ------------    ------------

Income from operations .........................      8,616,390       4,689,988
                                                   ------------    ------------
Other (income) expense:
  Interest expense .............................        902,169            --
  Interest income ..............................         (1,362)        (78,712)
                                                   ------------    ------------
Income before income taxes .....................      7,715,583       4,768,700
Provision for income taxes .....................      2,624,459       1,669,044
                                                   ------------    ------------
Net income .....................................   $  5,091,124    $  3,099,656
                                                   ============    ============

Net income per share - basic ...................   $       0.81    $       0.61
                                                   ============    ============

Net income per share - diluted .................   $       0.78    $       0.60
                                                   ============    ============

Weighted average shares outstanding - basic ....      6,256,729       5,072,116
                                                   ============    ============

Weighted average shares outstanding - diluted ..      6,516,075       5,198,010
                                                   ============    ============
</TABLE>




                 See notes to consolidated financial statements

                                       F-4
<PAGE>
KOALA CORPORATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                                                                                           Accumulated
                                         Common stock      Common       Note      Additional                  Other
                                   ---------------------  Stock to   Receivable    Paid-In      Retained  Comprehensive
                                     Shares       Amount  be Issued   Officer      Capital      Earnings  Income (Loss)    Total
                                   ---------- --------- ----------- ---------- ------------- ------------ ------------ ------------
<S>                                <C>        <C>       <C>         <C>         <C>          <C>          <C>          <C>
Balance, December 31, 1997 .......  5,054,724 $ 505,472 $      --   $     --    $  5,055,252 $  7,314,472 ($    25,124)$ 12,850,072
Net income .......................       --        --          --         --            --      3,099,656         --      3,099,656
Foreign currency translation
    adjustment ...................       --        --          --         --            --           --        (96,036)     (96,036)
                                                                                                                       ------------
Comprehensive income .............       --        --          --         --            --           --           --      3,003,620
Issuance of common stock for cash,
    net of expenses ..............    640,000    64,000        --         --       4,280,186         --           --      4,344,186
Common stock to be issued for
    acquisition of Park Structures       --        --     1,297,903       --            --           --           --      1,297,903
                                   ---------- --------- ----------- ----------  ------------ ------------ ------------ ------------
Balance, December 31, 1998 .......  5,694,724   569,472   1,297,903       --       9,335,438   10,414,128     (121,160)  21,495,781
                                   ---------- --------- ----------- ----------  ------------ ------------ ------------ ------------

Net income .......................       --        --          --         --            --      5,091,124         --      5,091,124
Foreign currency translation
    adjustment ...................       --        --          --         --            --           --         90,122       90,122
                                                                                                                       ------------
Comprehensive income .............       --        --          --         --            --           --           --      5,181,246
Issuance of common stock for cash,
    net of expenses ..............    360,000    36,000        --         --       2,564,996         --           --      2,600,996
Issuance of common stock for
    acquisitions .................    257,754    25,776  (1,297,903)      --       2,332,829         --           --      1,060,702
Issuance of common stock for
    stock options ................     84,650     8,465        --         --         363,031         --           --        371,496
Note receivable from officer .....       --        --          --     (383,505)         --           --           --       (383,505)
                                   ---------- --------- ----------- ----------  ------------ ------------ ------------ ------------
Balance, December 31, 1999 .......  6,397,128 $ 639,713 $      --   ($ 383,505) $ 14,596,294 $ 15,505,252 ($    31,038)$ 30,326,716
                                   ========== ========= =========== ==========  ============ ============ ============ ============
</TABLE>


                                                                F-5
<PAGE>
KOALA CORPORATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                  Years ended December 31,
                                                                    1999           1998
                                                               ------------    ------------
<S>                                                            <C>             <C>
Cash flows from operating activities:
  Net income ...............................................   $  5,091,124    $  3,099,656
  Adjustments to reconcile net income to
    net cash provided by operating activities:
      Depreciation .........................................        500,970         238,269
      Amortization .........................................        958,524         297,600
      Deferred income taxes ................................        410,613         222,267

      Increase in operating assets:
         Accounts receivable, trade ........................     (2,786,346)     (1,439,825)
         Inventories .......................................       (958,852)       (910,071)
         Prepaid expenses and other ........................       (438,867)       (250,959)
      Increase in operating liabilities:
         Accounts payable ..................................        425,737         342,466
         Accrued expenses and income taxes .................        514,701          86,217
                                                               ------------    ------------
Net cash provided by operations ............................      3,717,604       1,685,620
                                                               ------------    ------------

Cash flows from investing activities:
      Capital expenditures .................................     (1,106,736)       (519,918)
      Acquisitions, net of cash acquired ...................    (25,391,976)       (741,627)
      Patents and intangibles ..............................       (130,169)        (89,869)
                                                               ------------    ------------
Net cash used by investing activities ......................    (26,628,881)     (1,351,414)
                                                               ------------    ------------

Cash flows from financing activities:
      Sale of common stock, net of expenses ................      2,600,996       4,344,186
      Net proceeds from (payments on) credit facility ......     13,979,000            --
                                                               ------------    ------------
Net cash provided by financing activities ..................     16,579,996       4,344,186
                                                               ------------    ------------

Effect of exchange rate changes on cash and cash equivalents         11,647         (17,499)

Net increase (decrease) in cash and cash equivalents .......     (6,319,634)      4,660,893

Cash and cash equivalents at beginning of period ...........      6,493,570       1,832,677
                                                               ------------    ------------
Cash and cash equivalents at end of period .................   $    173,936    $  6,493,570
                                                               ============    ============
</TABLE>


                 See notes to consolidated financial statements

                                       F-6
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------

  1.     Summary of significant accounting policies:

         Nature of operations:

         Koala Corporation and its wholly owned  subsidiaries (the "Company") is
         a leading  designer,  producer  and  worldwide  marketer of  innovative
         commercial   products,   systems  and  custom   solutions  that  create
         attractive family-friendly environments for businesses and other public
         venues.  The Company produces family  convenience and activity products
         and  children's   indoor  and  outdoor  modular  play  equipment.   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.


         Use of estimates:

         Management  uses  estimates  and  assumptions  in  preparing  financial
         statements in accordance with generally accepted accounting principles.
         Those estimates and assumptions  affect the reported  amounts of assets
         and liabilities,  the disclosure of contingent  assets and liabilities,
         and the reported  revenue and expenses.  Actual results could vary from
         the estimates that were used.


         Financial instruments:

         The fair value of financial  instruments,  consisting of investments in
         cash,  cash  equivalents,   receivables,   obligations  under  accounts
         payable, and debt instruments,  is based on interest rates available to
         the Company and comparisons to quoted prices.  At December 31, 1999 and
         1998,  the  fair  value  of these  financial  instruments  approximates
         carrying value.

         Cash and  cash  equivalents  include  cash on  hand,  demand  deposits,
         savings accounts,  and short-term  investments with original maturities
         of three months or less. Cash and cash  equivalents  include  financial
         instruments that potentially  subject the Company to a concentration of
         credit risk. The Company places its cash and temporary cash investments
         with high  credit  quality  institutions.  At  times,  cash held in the
         Company's  primary bank may be in excess of the FDIC  insurance  limit.
         Cash in money market mutual funds is not federally insured. The Company
         performs periodic  evaluations of the relative credit standing of these
         financial institutions. As of December 31, 1999 and 1998, cash and cash
         equivalents consisted of the following:


                                                           1999          1998
                                                           -----         ----
               Cash in primary banking institution    $  173,936    $1,623,570
               Cash in mutual funds and agencies            --       4,870,000
                                                      ----------    ----------
                                                      $  173,936    $6,493,570
                                                      ==========    ==========


                                       F-7
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------
1.       Summary of significant accounting policies (continued):

         Inventories:

         Inventories  are stated at the lower of cost  (including  manufacturing
         overhead  applied  to  work-in-process  and  finished  goods) or market
         (first-in,  first-out).  As of December 31, 1999 and 1998,  inventories
         consisted of the following:


                                                         1999          1998
                                                         ----          ----
            Raw materials                            $2,116,864      $2,832,314
            Work-in-process and finished goods        3,020,927         748,823
                                                     ----------      ----------
                                                     $5,137,791      $3,581,137
                                                     ==========      ==========

         Property and equipment:

         Property and  equipment is stated at the lower of  depreciated  cost or
         net realizable  value.  Depreciation and amortization is being provided
         on the  straight-line  method  over the  estimated  useful  life of the
         asset.  The  following  is a  schedule  of  estimated  useful  lives of
         property and equipment:

                  Furniture and fixtures                    7 years
                  Tooling and molds                    6 - 10 years
                  Shop and office equipment            3 - 10 years
                  Leasehold improvements               3 -  5 years

         Property,  plant and equipment consist of the following at December 31,
         1999 and 1998:

                                                       1999              1998
                                                       ----              ----

                  Tooling  and molds               $1,670,917        $1,338,035
                  Office equipment                  1,044,143           490,766
                  Leasehold improvements              739,981           700,013
                  Furniture and fixtures              423,204           184,288
                  Shop equipment                      395,773           278,080
                                                  -----------       -----------
                                                    4,274,018         2,991,182


                  Less:  accumulated depreciation   1,060,038           559,068
                                                   ----------        ----------
                                                   $3,213,980        $2,432,114
                                                   ==========        ==========



                                      F-8

<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------


1.       Summary of significant accounting policies (continued):

         Goodwill and identifiable intangible assets:

         The  excess of  acquisition  cost over fair value of net  tangible  and
         identifiable  intangible  assets of  businesses  acquired  in  purchase
         transactions, has been included in goodwill and is being amortized on a
         straight-line  basis  over 30  years.  Identifiable  intangible  assets
         include patents,  trademarks,  trade names,  proprietary trade secrets,
         proprietary product designs,  customer lists and non-compete agreements
         and are being  amortized  over the lesser of the assets' legal life (if
         applicable) or their  estimated  economic  lives,  ranging from 5 to 40
         years.

         The  Company's  policy is to  account  for  goodwill  and  identifiable
         intangible  assets at the  lower of  amortized  cost or net  realizable
         value.  As part of an ongoing review of the valuation and  amortization
         of intangible  assets,  management  assesses the carrying  value of the
         Company's  intangible  assets  to  determine  if  changes  in facts and
         circumstances  suggest  that  they  may be  impaired.  If  this  review
         indicates that the intangibles  will not be recoverable,  as determined
         by a discounted  cash flow  analysis  over the  remaining  amortization
         period,  the  carrying  value  of the  Company's  intangibles  would be
         reduced  to  its  estimated  fair  market  value.  No  event  has  been
         identified  that would  indicate an impairment of the value of material
         intangible assets recorded in the accompanying  consolidated  financial
         statements.


         Revenue recognition:

         The Company recognizes revenues at the time its products are shipped.


         Research and development costs:

         Research  and  development  costs  are  expensed  when  incurred.   The
         Company's  research and development  costs were not significant in 1999
         or 1998.


         Advertising costs:

         Advertising costs are expensed when incurred.  Advertising  expense for
         the  periods  ended  December  31,  1999 and 1998  was  $1,301,422  and
         $443,309, respectively.


         Income taxes:

         The  Company  provides  for  deferred  taxes on  temporary  differences
         arising  from  assets and  liabilities  whose bases are  different  for
         financial reporting and state, federal and foreign income tax purposes.
         The differences relate primarily to depreciable and amortizable assets,
         certain accrued expenses and the allowance for uncollectible  accounts.
         For foreign  corporate  income  taxes paid,  the Company will utilize a
         foreign tax credit against the federal corporate income tax liability.


                                      F-9
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------

1.       Summary of significant accounting policies (continued):

          Foreign currency translation:

         The financial statements of the Company's  subsidiaries located outside
         the  United  States  are  measured  using  the  local  currency  as the
         functional  currency.  Assets and liabilities of these subsidiaries are
         translated  at the rates of  exchange at the  balance  sheet date.  The
         resultant  translation  adjustments  are included in equity  adjustment
         from translation,  a separate component of shareholders' equity. Income
         and expense items are  translated  at average rates of exchange.  Gains
         and losses on foreign currency  transactions of these  subsidiaries are
         included in net earnings.


          Reclassifications:

         Certain amounts in the 1998 financial statements have been reclassified
         to conform to the 1999 presentation.

         Stock Split:

         On  October  8,  1999,  the  Company's  Board of  Directors  approved a
         two-for-one  stock split effected as a stock  dividend.  All amounts in
         the accompanying  financial  statements and related footnotes have been
         restated to reflect this stock split.


2.       Acquisitions:

         Acquisition of Smart Products:

         Effective September 1, 1999, the Company purchased substantially all of
         the assets of Smart  Products,  Inc.,  a provider  of child  safety and
         parental  convenience  products  located in Charlotte,  North Carolina.
         Results of operations of Smart  Products were included in the Company's
         consolidated statement of income beginning on the effective date of the
         transaction.

         The purchase price consisted of a cash payment of $1,273,000, which was
         financed from both internal  operations and an advance on the Company's
         line of credit in the amount of  approximately  $800,000.  In addition,
         costs of $117,000 were incurred in  connection  with this  acquisition.
         Initial  consideration and acquisition costs were allocated to tangible
         assets  based  on  relative  fair  value,  with the  remaining  balance
         allocated to goodwill.


         Acquisition of Superior Foam:

         Effective March 1, 1999, the Company purchased substantially all of the
         assets of Superior Foam & Polymers, Inc., a provider of children's foam
         activities products located near Austin,  Texas.  Results of operations
         of Superior Foam were included in the Company's  consolidated statement
         of income beginning on the effective date of the transaction.


                                      F-10
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------

2.       Acquisitions: (continued)

         Acquisition of Superior Foam:

         As consideration, the Company paid $5.0 million cash, and issued 95,800
         shares of Koala Corporation  common stock valued at approximately  $1.0
         million on the effective date. The Company paid the cash portion of the
         purchase price with cash generated from both internal operations and an
         advance on the Company's line of credit in the amount $4.6 million.  In
         addition,  costs of  $204,223  were  incurred in  connection  with this
         acquisition.  The consideration and acquisition costs were allocated to
         tangible  assets  based on  relative  fair  value,  with the  remaining
         balance allocated to proprietary trade secrets,  non-compete agreements
         and  goodwill  and have  been  recorded  as  intangible  assets  in the
         accompanying consolidated balance sheet.


         Acquisition of Park Structures:

         Effective December 16, 1998, the Company purchased substantially all of
         the assets of Park Structures,  Inc., a provider of children's  outdoor
         modular  play  systems  based in Coral  Springs,  Florida.  Results  of
         operations   of  Park   Structures   were  included  in  the  Company's
         consolidated statement of income beginning on the effective date of the
         transaction.  The initial  consideration  paid for Park  Structures was
         $13,865,043,  for which the Company issued a promissory  note, net of a
         $400,000  holdback,  for $13,465,043.  Such promissory note was paid on
         January 4, 1999 using proceeds of the secondary  public offering and an
         advance of  $7,600,000 on the  Company's  line of credit.  In addition,
         acquisition  costs of $131,479 and asset adjustments of $1,001,798 were
         incurred  and paid with  cash from  operations  and an  advance  on the
         Company's line of credit in the amount of approximately $1,000,000. The
         December 31, 1999 financial  statements reflect the final allocation of
         the purchase  price.  The  consideration,  acquisition  costs and asset
         adjustments  were  allocated to tangible  assets based on relative fair
         value,  with the remaining  balance  allocated to  proprietary  product
         designs,  non-compete agreements and goodwill and have been recorded as
         intangible assets in the accompanying consolidated balance sheet.

         The purchase  agreement also provided for additional  consideration  in
         the  form of  cash  and  Company  common  stock  if  certain  operating
         performance  criteria were met by Park  Structures  for the year ending
         December 31, 1998 and for the rolling  twelve-month  period ending June
         30, 1999.  For the December 31, 1998  earnout  period,  the  additional
         consideration  amounted  to 161,954  shares of common  stock  valued at
         $1,362,842  and  cash of  $2,789,925.  For the June  30,  1999  earnout
         period, the additional  consideration  amounted to $1.0 million,  which
         was paid in cash during  1999.  The  earnouts  have been  allocated  to
         goodwill.


                                      F-11
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------


3.       Credit facility:

         The Company obtained a $15.0 million secured line of credit on December
         16,  1998.  The line of credit is secured by  substantially  all of the
         assets of the  Company.  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  and is  payable  in full on  December  16,  2001.  Interest
         payments are required at least every three months at a fluctuating rate
         per annum equal to the applicable  "Reserve Adjusted LIBOR Rate" (8.18%
         at  December  31,  1999).  A  commitment  fee in the  amount of .25% is
         payable  quarterly in arrears based on the average daily unused portion
         of the line.


4.       Debt:

         On  December  16,  1998,  the  Company  issued  a  non-interest-bearing
         promissory  note in the amount of  $13,465,043  for the purchase of the
         assets  of Park  Structures.  The  promissory  note was  secured  by an
         irrevocable  letter  of  credit  from  a  financial  institution.   The
         promissory note was paid in full on January 4, 1999.

5.       Common stock:

         On December 16, 1998, the Company completed a secondary public offering
         of 2,400,000 shares of Koala Corporation common stock. The Company sold
         640,000  shares of common  stock,  and a selling  shareholder  sold the
         remaining  1,760,000  shares.  The Company  received  proceeds,  net of
         offering  expenses,  of  $4,344,186  for the 640,000  shares of Company
         stock sold. On January 22, 1999, the Company's  underwriters  exercised
         their over-allotment option to purchase an additional 360,000 shares of
         the Company's  common stock pursuant to the 1998 common stock offering.
         The  issuance of the shares  resulted in net  proceeds  after  offering
         expenses of $2,600,996. The proceeds were used to reduce long-term debt
         that was incurred  under the credit  facility to purchase the assets of
         Park Structures.


6.       Supplemental financial information:


              Supplemental cash flow information:


                                                      1999         1998
                                                      ----         ----
              Interest received                   $    8,586    $   83,043
                                                  ==========    ==========

              Interest paid                       $  772,074          --
                                                  ==========    ==========

              Income taxes paid                   $2,370,282    $1,420,483
                                                  ==========    ==========


                                      F-12
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------



6.       Supplemental financial information: (continued)

<TABLE>
<CAPTION>
               Supplemental non-cash information:


                                                               1999            1998
                                                               ----            ----
<S>                                                         <C>             <C>
               Net assets acquired from Smart
               Products                                     $1,390,000            --
                                                            ==========      ==========

               Net assets acquired from
               Superior Foam                                $6,204,223            --
                                                            ==========      ==========

               Net assets acquired from Park Structures          --         $19,086,772
                                                            ==========      ===========

               Note payable and other amounts payable
               to Seller of Park Structures                      --         $17,367,314
                                                            ==========      ===========

               Common stock issued to the Seller of
               Park Structures                                 $64,939      $ 1,297,903
                                                            ==========      ===========

               Common stock issued to the Sellers of
               Superior Foam                                $1,000,000             --
                                                            ==========      ===========
</TABLE>

7.       Commitments and contingencies:

         Operating lease:

         The Company has entered into operating leases for facilities located in
         Denver, Colorado, Coral Springs,  Florida,  Charlotte,  North Carolina,
         Wimberley, Texas, and Delta, British Columbia, Canada.

         The lease terms vary and run through May 31, 2003.  All leases call for
         monthly  base  rents,  with the  Company  responsible  for its share of
         common building operating costs, payable on a monthly basis.




                                      F-13
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------



7.       Commitments and contingencies: (continued)


         Facilities  rent  expense was  $695,885  and  $338,277 for years ending
         December 31, 1999 and 1998, respectively. Total minimum operating lease
         commitments are as follows:



                     Year Ending December 31,                Amount
                     ------------------------                ------
                               2000                      $  789,107
                               2001                         703,966
                               2002                         379,864
                               2003                         141,585
                                                            -------
                                                         $2,014,522
                                                         ==========


         Warranties:

         The Company provides a replacement guarantee for one year from purchase
         protecting  against damage from natural  disasters or vandalism subject
         to a $100 deductible. The Company also provides a five-year warranty on
         parts and labor  covering any defects in  workmanship.  The Company has
         experienced  minimal  returns and  warranty  claims;  therefore,  as of
         December 31, 1999 and 1998, no accrual has been made for future claims.


8.       Stock options:

         The Company adopted a Stock Option Plan (1993 Plan) in August 1993. The
         1993 Plan  provides  that  options to purchase up to 100,000  shares of
         common  stock may be  granted.  The  Company  adopted a second  plan in
         November  1995 (1995 Plan) which  provides that  additional  options to
         purchase  up to  400,000  shares of common  stock may be  granted.  The
         exercise  price of each  option  is equal  to the  market  price of the
         Company's stock on the date of grant.  The option term varies,  as well
         as the vesting periods, at the discretion of the Board of Directors.

         In January 1998, the Company  authorized the amendment and  restatement
         of the 1995 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.


                                      F-14
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------


8.       Stock options: (continued)

         The fair value of each option  granted is  estimated  on the grant date
         using the Black-Scholes  Model. The following  assumptions were made in
         estimating fair value:



                                                   1999           1998
                                                   ----           ----

           Assumption
           ----------

           Dividend yield                            0.0%          0.0%
           Risk-free interest rate
                5 year                              6.25%         6.25%
           Expected life                           5 years        5 years
           Expected volatility                     42.50%         43.00%



         The Company  applies APB Opinion 25 in  accounting  for its stock based
         compensation  plans.   Accordingly,   no  compensation  cost  has  been
         recognized for the plans in 1999 and 1998. Had  compensation  cost been
         determined  on the basis of fair value  pursuant to FASB  Statement No.
         123,  net income and  earnings  per share would have been  presented as
         follows:


             Net income                              1999              1998
             ----------                              ----              ----

                  As reported                     $5,091,124         $3,099,656
                                                  ==========         ==========

                  Pro forma (FASB 123)            $4,721,877         $2,742,162
                                                  ==========         ==========

             Basic earnings per share
             ------------------------

                  As reported                         $.81             $.61
                                                      ====             ====

                  Pro forma (FASB 123)                $.75             $.54
                                                      =====            ====

             Diluted earnings per share
             --------------------------

                  As reported                         $.78             $.60
                                                      ====             ====

                  Pro forma (FASB 123)                $.72             $.53
                                                      =====            ====




                                      F-15
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------


8.       Stock options: (continued)


         Following is a summary of the status of the plans during 1999 and 1998:


                                                         Weighted
                                           Number of     Average
                                            Shares    Exercise Price     Price
                                            ------    --------------     -----
Outstanding December 31, 1997 .........    566,000        $5.76           $4.63
                                                                       to $7.50

    Granted - 1998 ....................    260,000        $9.31           $7.25
                                                                      to $11.50

    Forfeited - 1998 ..................    (20,000)       $6.50           $6.50
                                            ------

Outstanding December 31, 1998 .........    806,000        $6.89           $4.63
                                                                      to $11.50

    Granted - 1999 ....................    261,000       $12.20           $9.69
                                                                      to $16.38

    Exercised - 1999 ..................   (102,000)       $5.43           $4.63
                                          --------                     to $9.00

Outstanding December 31, 1999 .........    965,000        $8.47           $4.63
                                          ========                    to $16.38



                                                       1999             1998
                                                       ----             ----
            Options exercisable                       422,000         334,000
                                                      =======         =======

            Weighted average fair value  of
            options granted during the year             $5.65           $4.37
                                                      =======         =======



                                      F-16
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------

8.       Stock options: (continued)

         A summary of the status of fixed  options  outstanding  at December 31,
1999 is as follows:

                           Outstanding Options     Exercisable Options
                           -------------------     -------------------
                          Weighted
                          Average      Weighted                Weighted
                         Remaining     Average                 Average
                        Contractual    Exercise                Exercise
 Price          Number     Life         Price     Number        Price
 -----          ------     ----         -----     ------        -----


$4.63 to       500,000   6.2 years       $6.02    344,000       $5.95
$7.50


$8.00 to       158,000   8.3 years       $8.89     28,000       $8.64
$10.38


$11.50 to      300,000   9.1 years      $12.21     50,000      $12.18
$13.00


$13.50 to        7,000   9.8 years      $14.82       --          --
$16.38


9.       Income taxes:

         The components of the provision for income tax were:


                              --------------------------------------------------
                                                  1999
                              -------------------------------------------------
                               Federal       Foreign        State        Total
                               -------       -------        -----        -----

Current tax expense ......   $1,903,943   $  155,129   $  154,774   $2,213,846
Deferred tax expense .....      366,565         --         44,048      410,613
                             ----------   ----------   ----------   ----------
Provision for income taxes   $2,270,508   $  155,129   $  198,822   $2,624,459
                             ==========   ==========   ==========   ==========

                              --------------------------------------------------
                                                  1998
                              -------------------------------------------------
                               Federal       Foreign        State        Total
                               -------       -------        -----        -----

Current tax expense ......   $1,153,496   $  234,048   $   59,233   $1,446,777
Deferred tax expense .....      216,860         --          5,407      222,267
                             ----------   ----------   ----------   ----------
Provision for income taxes   $1,370,356   $  234,048   $   64,640   $1,669,044
                             ==========   ==========   ==========   ==========


                                      F-17

<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------

9.       Income taxes: (continued)

         The  tax  effects  of  temporary   differences  that  give  rise  to  a
         significant  portion of the  deferred  tax assets  and  liabilities  at
         December 31, 1999 and 1998 are as follows:


                                                           1999            1998
                                                           ----            ----
Deferred tax assets:
  Allowance for doubtful accounts ............       $   46,387       $   39,000
                                                     ----------       ----------

Deferred tax liabilities:
  Depreciation ...............................          259,000          214,000
  Amortization ...............................          804,000          403,000
  Other ......................................             --             28,000
                                                     ----------       ----------
                                                      1,063,000          645,000
                                                     ----------       ----------
Net deferred tax liability ...................       $1,016,613       $  606,000
                                                     ==========       ==========

         The effective tax rate differs from the statutory rate as follows:


                                                               1999       1998
                                                               ----       ----
Federal statutory rate ...................................     34.0%      34.0%
Foreign taxes in excess of federal statutory rate ........      2.0        4.9
Tax benefit of foreign tax credit ........................     (2.0)      (4.9)
State income taxes - net of federal effect ...............      1.3        0.8
Effect of difference in tax basis of goodwill ............     (0.5)      (0.8)
Foreign sales corporation benefit ........................     (1.3)      (1.1)
Miscellaneous tax adjustments ............................       .5        2.1
                                                               ----       ----
Effective tax rate .......................................     34.0%      35.0%
                                                               ====       ====


10.      Major suppliers:

         For the periods ended December 31, 1999 and 1998, the Company purchased
         a  significant  amount of  component  parts  from three  vendors  which
         accounted for  approximately 18% and 38% of the Company's total cost of
         sales, respectively.

11.      401(k) Plan:

         Effective  January  1997,  the  Company  adopted a 401(k)  Plan for the
         benefit of substantially  all of its U.S.  employees  meeting specified
         eligibility requirements. The Plan permits contributions by the Company
         but does not require  them.  The Company made no  contributions  to the
         Plan  during  1998 and two  contributions  during  1999  that  were not
         material.



                                      F-18

<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------


12.      Preferred stock:

         During  1996  the   shareholders   voted  to  amend  the   Articles  of
         Incorporation to provide for the issuance of 1,000,000 shares of no par
         value preferred stock. At December 31, 1999 and December 31, 1998, none
         were  outstanding.  The Board of  Directors  is  granted  authority  to
         determine  dividends and other rights and preferences for the preferred
         stock.

13.      Geographic and business segments:

         Business segments:

         The Company operates two business segments:  (1) Family Convenience and
         Children's   Activity   Products,   and  (2)  Children's  Modular  Play
         Equipment.  The Company's  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").  Other significant products
         in this  segment are the  sanitary  paper liners for the BCS, the Child
         Protection Seat, the Infant Seat Kradle, the highchair,  block and bead
         tables and the wonder wall. All of these products are  manufactured  by
         sub-contractors  or purchased  from third  parties.  These products are
         sold direct and through distribution.

         The Company's  modular play equipment  includes both indoor and outdoor
         equipment.  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.  The products are  manufactured by the
         Company at its facilities located in Delta, British Columbia, and Coral
         Springs,   Florida.   These   products  are  sold  direct  and  through
         manufacturer's representatives/dealers.

         The Company  evaluates the  performance of its segments based primarily
         on  operating  profit  before  acquisition   intangible   amortization,
         corporate  expenses  and  interest  income  and  expense.  The  Company
         allocates  corporate  expenses to individual  segments based on segment
         sales.  Corporate  expenses  are  primarily  labor  costs of  executive
         management  and  shareholders'  relations  costs.  The following  table
         presents sales and other financial information by business segment:
<TABLE>
<CAPTION>
         ---------------------------------------------------------------------------------
                                      1999
         ---------------------------------------------------------------------------------

                                           Convenience and    Modular Play
                                          Activity Products    Equipment          Total
                                             -----------       ----------      -----------
<S>                                          <C>              <C>              <C>
          Sales .......................      $16,108,368      $21,026,344      $37,134,712
          Operating income ............        5,076,201        3,540,189        8,616,390
          Capital expenditures ........          778,700          328,036        1,106,736
          Total assets ................       18,865,034       29,693,266       48,558,300
</TABLE>


                                      F-19
<PAGE>
                                KOALA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
--------------------------------------------------------------------------------


13.      Geographic and business segments: (continued)
<TABLE>
<CAPTION>
         ---------------------------------------------------------------------------------
                                               1998
         ---------------------------------------------------------------------------------

                                           Convenience and    Modular Play
                                          Activity Products    Equipment          Total
                                             -----------       ----------      -----------

<S>                                          <C>              <C>              <C>
          Sales .......................      $11,946,053      $ 7,154,712      $19,100,765
          Operating income ............        3,661,275        1,028,713        4,689,988
          Capital expenditures ........          294,036          225,882          519,918
          Total assets ................       15,209,446       26,395,754       41,605,200
</TABLE>


         Geographic area data:

         Geographically,  sales,  operating income and  identifiable  assets for
         non-domestic  entities  for the years ended  December 31, 1999 and 1998
         were $7,205,284 and $6,690,230,  $924,369 and $1,133,917 and $3,700,731
         and $2,737,443,  respectively.  There were no material amounts of sales
         or transfers among geographic areas during 1999 or 1998.


14.      Note receivable from officer:

         During the third and fourth  quarters of 1999, the Company made secured
         loans to an officer of the Company in the amount of  $370,000,  for the
         purpose of the officer's  exercise of vested stock  options.  The notes
         are full recourse,  secured by marketable securities of the officer and
         interest  bearing at an  adjustable  rate equal to a commercial  bank's
         prime  rate.  The notes are due on  February  12, and May 3, 2001.  The
         notes have been recorded as a reduction of shareholders'  equity in the
         Company's  balance  sheet at December 31,  1999.  At December 31, 1999,
         $13,505 of interest had been accrued on the note.



                                      F-20
<PAGE>
                                                                    EXHIBIT 21.1
Subsidiaries of the Company


     Name of Subsidiary    Jurisdiction of Incorporation    Percentage Ownership
     ------------------    -----------------------------    --------------------

     Delta Play (US), Inc. State of Colorado                        100%

     Delta Play Company    Province of Nova Scotia, Canada          100%

     PS Florida, Inc.      State of Colorado                        100%

     Koala Foreign Sales   Barbados                                 100%
     Corporation


<PAGE>
                                                                    EXHIBIT 23.1

                         Consent of Independent Auditors

We consent to the  incorporation by reference in the  Registration  Statement on
Form S-8  pertaining to the 1995 Stock Option Plan of Koala  Corporation  of our
report  dated  February  1, 2000,  with  respect to the  consolidated  financial
statements of Koala Corporation included in the Annual Report on Form 10-KSB for
the year ended December 31, 1999.


  /s/ERNST & YOUNG LLP

Denver, Colorado
February 16, 2000