Presented below are cash flow data 

for L.A. Gear Inc. During this period of time, the manufacturer of athletic shoes and sportswear experienced a 1200 percent growth in net income.

Required
1. Explain why the cash flow from operations is negative.
2. How did the company finance its operations during the three-year period? Explain the logic of this strategy.
3. Depreciation expense as a percent of net income is only two to three percent during this period. What might explain this?

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(in thousands) L.A. GEAR INC. Statement of Cash Flow For Year Ended 12/31 Year 3 Year 2 Year 1 Cash flow from operations Net income.. $55,059 $22,030 $ 4,371 Depreciation. 1,199 446 133 Noncash compensation to employees. 558 - Increase in accounts receivable. (51,223) (34,378) (12,410) Increase in inventories. (72,960) (50,743) (1,990) Increase in prepayments (8,624) (2,432) (599) Increase in accounts payable. 17,871 7,197 1,656 Increase (decrease) in other current liabilities 10,587 11,193 (537) Cash flow from operations.. (47,533) (46,687) (9,376)