SM: Do you work with foundations?
JK: We do. We do not have what I call a structured program with any one foundation. What we have done in the past, in fact annually we do something with one or more foundations.
SM: Given the strength is in the reading area, and Bill Gates is spending most of his energy there, it seems like a perfect synergy.
JK: I think we have to start with making money first.
SM: They could potentially finance some of the product dissemination.
JK: Potentially, but most of the foundations who come to us to interact are looking for something for free. Even when Negroponte was pitching one laptop per child, it is the same thing. He can foresee us buying some kind of large lot size of machines.
SM: I would design content for that machine rather than buying anything.
JK: He is more interested in people buying. He is a consummate sales person. I think our first priority is that we have to get back into making money and growing our asset base. Then I think we can have more flexibility to do a lot of interesting things.
SM: I would like to talk a bit about the financials. How are you financing all of these efforts? You have a very complicated P&L to deal with.
JK: True, in some respects. We do not have any debt, and we have a lot of cash. Essentially, we are financing all of this through internal cash flow to date. We expect to continue to do so. We will not be taking on any debt because we produce working capital to the degree we need. We are fortunate in that sense that we do not have to raise money and we are managing very carefully any sort of cash burn. This will be a cash burn year, but somewhat modest. Next year will probably be break even.
SM: Are you seeing things around that you might be able to acquire that fits with your vision of the world?
JK: We have seen a lot of things that are interesting, but most of the really interesting stuff is really expensive. NeoPets or WebKinz are good assets, but they go for astronomical multiples, well beyond any kind of discounted cash flow justification. I don’t see anything in the short run and definitely not with our market cap where it is. We are going to have to come back a long ways first. You will hear me say this a lot, our first job is to get our house back in order, make money and have positive cash flow and then explore partnership possibilities.