1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the Period Ended September 30, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) Commission file number 0-17237 SELFIX, INC. ----------------------------------------------------- (Exact name of registrant as specified in its Charter) Delaware 36-2490451 - ------------------------------------------ ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4501 West 47th Street Chicago, Illinois 60632 - -------------------------- ------------ (Address of principal (Zip Code) executive offices) Registrant's telephone number including area code (312) 890-1010. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Common shares, par value $0.01, outstanding as of November 3,1995 - 3,800,602 2 SELFIX, INC. AND SUBSIDIARIES INDEX Page Number ------ Part I. Financial Information Item 1 - Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 5 and Retained Earnings Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 8 Item 2 - Management's Discussion and Analysis of 11 Financial Condition and Results of Operations Part II. Other Information 16 Signatures 17 2 3 ITEM I FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (unaudited) September 30, December 31, ASSETS 1995 1994 ------------ ------------ CURRENT ASSETS Cash and cash equivalents............................................... $ 5,223 $ 4,859 Investments in marketable securities -- available for sale............. 521 944 Accounts receivable..................................................... 6,765 4,947 Notes receivable and other receivables.................................. 80 1,773 Refundable income taxes................................................. 54 381 Inventories............................................................. 5,583 5,650 Prepaid expenses and other current assets............................... 195 189 ----------- ---------- Total current assets.................................................. 18,421 18,743 PROPERTY, PLANT AND EQUIPMENT............................................. 22,432 21,578 Less accumulated depreciation and amortization.......................... 13,197 11,243 ----------- ---------- 9,235 10,335 LAND...................................................................... 131 131 OTHER ASSETS Restricted Cash - Industrial Revenue Bond............................... -- 5 Intangible assets....................................................... 1,169 1,536 Other................................................................... 52 11 ----------- ---------- Total other assets.................................................... 1,221 1,552 ----------- ---------- TOTAL ASSETS $ 29,008 $ 30,761 =========== ========== The accompanying notes are an integral part of these statements. 3 4 ITEM I - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED (Dollars in thousands) (unaudited) September 30 December 31, 1995 1994 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations............................. $ 893 $ 992 Accounts payable........................................................ 1,137 1,921 Accrued liabilities..................................................... 4,306 4,804 --------- ---------- Total current liabilities............................................. 6,336 7,717 LONG-TERM OBLIGATIONS - net of current maturities......................... 9,344 9,421 STOCKHOLDERS' EQUITY Preferred stock - authorized 500,000 shares; $.01 par value; none issued....................................... -- -- Common stock - authorized 7,500,000 shares, $.01 par value; issued, 3,609,364 shares and outstanding 3,550,602 shares at September 30, 1995 and 3,603,637 shares issued and outstanding at December 31, 1994........................................................... 36 36 Additional paid-in-capital............................................ 9,383 9,360 Retained earnings..................................................... 4,335 4,500 Cumulative foreign currency translation adjustment.................... (176) (222) Unrealized net holding gains (losses) on available-for-sale securities ......................................................... 14 (51) Common stock held in treasury, at cost (58,762 shares in 1995)........ (264) -- --------- ---------- Total stockholders' equity............................................ 13,328 13,623 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,008 $ 30,761 ========= ========== The accompanying notes are an integral part of these statements. 4 5 ITEM 1 - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (Dollars in thousands except per share amounts) (unaudited) Thirteen Weeks Ended Thirty-nine Weeks Ended September 30,1995 September 24, 1994 September 30, 1995 September 24,1994 Net sales................................................. $ 10,319 $ 10,458 $ 31,689 $ 31,497 Cost of goods sold........................................ 6,477 6,928 19,591 18,606 --------- -------- -------- -------- Gross profit.......................................... 3,842 3,530 12,098 12,891 Operating expenses........................................ 3,966 5,646 12,177 13,794 Restructuring charge...................................... -- 552 -- 552 --------- -------- -------- -------- Total operating expense and restructuring charge.......... 3,966 6,198 12,177 14,346 Operating profit (loss)............................... (124) (2,668) (79) (1,455) Other income (expense) Interest (expense)...................................... (210) (262) (685) (813) Other income (expense) - net............................ 377 (389) 613 (309) --------- -------- -------- -------- 167 (651) (72) (1,122) Income (Loss) before income tax........................... 43 (3,319) (151) (2,577) Income tax expense (benefit).............................. 1 (82) 14 117 --------- -------- -------- -------- Net income (loss)..................................... 42 (3,237) (165) (2,694) Retained earnings at beginning of period ................. 4,293 11,046 4,500 10,503 --------- -------- -------- -------- Retained earnings at end of period ....................... $ 4,335 $ 7,809 $ 4,335 $ 7,809 ========= ======== ======== ======== Net income (loss) per common and common equivalent share $0.01 ($0.92) ($0.05) ($0.77) Number of common and common equivalent shares ............ 3,552,795 3,506,839 3,575,332 3,506,839 The accompanying notes are an integral part of these statements. 5 6 ITEM I - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) Thirty-nine Weeks Ended September 30, 1995 September 24, 1994 Cash flows from operating activities: Net (loss)............................................... $ (165) $ (2,694) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 1,944 1,870 Amortization of intangible assets...................... 367 1,202 Deferred income tax expense............................ -- 368 Provision for losses on accounts receivable............ 92 438 Provision for losses on notes receivable............... -- 57 (Gain) on sale of fixed assets......................... (78) (9) Provision for restructuring charges.................... -- 552 Amortization of bond premium........................... 65 -- Changes in assets and liabilities (Increase) in accounts receivable...................... (1,886) (2,995) Decrease in inventories................................ 110 457 (Increase) decrease in refundable income taxes......... 328 (229) Decrease in prepaid expenses and deposits.............. 10 63 (Increase) decrease in other assets.................... (39) 419 Decrease in notes and other receivables................ 1,693 2 Increase (decrease) in accounts payable................ (786) 176 Increase (decrease) in accrued liabilities............. (507) 1,086 --------- --------- Total adjustments.................................... 1,313 3,457 --------- --------- Net cash provided by operating activities............ 1,148 763 Cash flows from investing activities: Purchase of property, plant and equipment-(net)......... (761) (1,693) Decrease in marketable securities....................... 408 212 Purchase of treasury stock.............................. (264) -- Restricted cash - Industrial Revenue Bond............... 5 1,045 --------- --------- Net cash (used in) investing activities.............. (612) (436) Cash flows from financing activities: Borrowings from bank.................................... -- 1,500 Payments on borrowings.................................. (155) (2,197) Payment of capital lease obligation..................... (20) (17) Exercise of common stock options........................ 23 11 --------- --------- Net cash (used in) financing activities.............. (152) (703) 6 7 ITEM I - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Dollars in thousands) (unaudited) Thirty-nine Weeks Ended September 30, 1995 September 24, 1994 ----------------- ---------------- Effect of exchange rate changes on cash.......................... (20) (18) -------- -------- Net increase (decrease) in cash and cash equivalents....... 364 (396) Cash and cash equivalents at beginning of period................. 4,859 4,391 -------- -------- Cash and cash equivalents at end of period....................... $ 5,223 $ 3,995 ======== ======== Supplemental disclosures of cash flow information Cash paid (received) during the period for Interest and swap fees....................................... $ 623 $ 670 Income taxes, net............................................ $ (325) $ (28) The accompanying notes are an integral part of these statements. 7 8 ITEM I - FINANCIAL STATEMENTS FORM 10-Q SELFIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The condensed consolidated financial statements included herein as of September 30, 1995 and September 24, 1994, and for the thirteen and thirty-nine weeks ended September 30, 1995 and September 24, 1994 are unaudited and, in the opinion of the Company, reflect all adjustments (which include normal recurring accruals) necessary for the fair presentation of the financial position and the results of operations and cash flows. 2. These financial statements are presented in accordance with the requirements of Form 10-Q and, consequently, may not include all disclosures normally required by generally accepted accounting principles or those normally in the Company's audited annual financial statements. Accordingly, the Company's audited consolidated financial statements and notes thereto, included in its Annual Report on Form 10-K, should be read in conjunction with the accompanying condensed consolidated financial statements. 3. The 1994 financial statements include certain reclassifications which were necessary to conform the presentation of the results of operations and changes in financial condition to the third quarter of 1995. 4. Inventories are summarized as follows: SEPTEMBER 30, DECEMBER 31, 1995 1994 -------- -------- Finished Goods $3,241 $2,344 Work-in-Process 1,000 1,406 Raw Materials 1,342 1,900 ------ ------ $5,583 $5,650 ====== ====== 5. The provision for income taxes for 1995 reflects the taxes on income of foreign subsidiaries. The provision for income taxes as of September 24, 1994 reflects a change in the deferred tax valuation allowance due to a change in the 8 9 ITEM I - FINANCIAL STATEMENTS FORM 10-Q SELFIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) estimate of the future realization of net future tax deductions. The Company sustained significant losses during the thirty-nine weeks ended September 24, 1994. The current tax benefit for the thirty-nine weeks ended September 24, 1994 reflects the amount available from carrybacks. The Company's net deferred tax position consists of the tax effect of timing differences for, among other matters, inventory and receivable valuation reserves, accruals, the tax effect of estimated net operating loss carryforwards and tax credit carryforwards offset by a valuation allowance. 6. Income (loss) per share has been computed by dividing net income (loss) for the thirteen weeks ended September 30, 1995 and September 24, 1994 by 3,552,795 and 3,506,839 common shares, respectively. For the thirty-nine weeks ended September 30, 1995 and September 24, 1994, income (loss) per share has been computed by dividing net income (loss) by 3,575,332 and 3,506,839 common shares respectively. Common share equivalents included in the computation of common and common equivalent shares represent shares issuable upon assumed exercise of the stock options using the treasury stock method. Common share equivalents are not included under the treasury stock method when their effect is antidulitive. 7. During the third and fourth quarter of 1994, the Company recorded a $1.7 million charge relating to costs of severance and termination benefits paid or accrued for a change in the level and composition of employees, termination of existing employee arrangements, inventory adjustments and fixed asset write-downs related to product lines to be discontinued. As of December 31, 1994 approximately $.3 million of obsolete inventory reserves and $.7 million of accrued severance 9 10 ITEM I - FINANCIAL STATEMENTS FORM 10-Q SELFIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) benefits remained on the Company's books. The amount of cash paid for severance benefits and obsolete inventory disposed of in 1995 is detailed as follows: OBSOLETE SEVERANCE INVENTORY BENEFITS ----------- ------------ Balance at 12/31/94 $.3 million $.7 million Changes to reserves .3 million .6 million ----------- ----------- Balance at 9/30/95 $ - $.1 million =========== =========== 8. On December 13, 1994, the Company's Board of Directors approved the 1995 Employee Stock Purchase Plan which allows eligible employees of the Company to acquire up to 200,000 shares of the Company's common stock. On July 11, 1995 the shareholders approved the plan. On May 9, 1995, options outstanding aggregating 460,000 shares were cancelled and reissued at prices ranging from $6.00 to $8.00 which exceeded the market price at the date of reissuance. On September 27, 1995, the Company's Board of Directors granted 80,000 options to certain key employees at prices ranging from $6.00 to $8.00 which exceeded the market price on the date of issuance. Also on that date, 20,000 options were granted to outside directors at $5.375 which equaled the market price. An additional 10,000 options were granted effective October 9, 1995 to a certain key employee at prices ranging from $6.00 to $8.00 which exceeded the market price on the date of issuance. 9. Subsequent event: On October 24, 1995 the Company completed the acquisition of the common stock of Mericon Child Safety Products, a division of the Denshaw Corporation, Inc. Total consideration amounted to approximately $2,231,000 which consisted of 250,000 shares of the Company's common stock, and $856,000 in cash. 10 11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. In the discussion and analysis that follows all references to 1995 and 1994 refer to the 13 and 39 week periods ended September 30, 1995 and September 24, 1994. The following amounts are in thousands of dollars. RESULTS OF OPERATIONS FOR THE 13 WEEKS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 24, 1994 Net sales decreased $139 (1%) from 1994 due to reduced activity at the Company's foreign subsidiaries. Partially offsetting these variances were increased sales of the home improvement product line and reduced return and allowance and trade promotion expense. Last year the Company initiated an assessment of customer and market trends. As a result of these actions, certain expense accruals for returns and allowances and trade promotions were provided for last year. Cost of goods sold as a percentage of sales decreased to 62.8% from 66.2% last year. The decrease is primarily associated with reduced inventory reserves for obsolete, slow moving and discontinued items that were recorded last year as part of the assessment of customer and market trends. Excluding these reserves, cost of goods sold increased to 62.8% from 61.8% last year primarily reflecting an increase in resin prices. The Company expects that material costs will continue to adversely impact gross margins over the balance of the year compared to 1994. Additionally, the Company continues to review product line profitability and strategic fit to determine whether to continue providing certain lines to customers. As part of this review, it is expected that further operational efficiencies may be identified. This review is expected to result in additional inventory and other reserves in the fourth quarter. 11 12 Operating expenses decreased to 38.4% of sales compared to 54.0% for the same period last year. This decrease is primarily associated with the absence of actual expenditures or reserves for bad debt, product development, employee costs and increased amortization associated with the write-down of certain intangible assets recorded last year as a result of the assessment of customers and market trends. Also contributing to the decrease in the operating expense percentage were reduced general and administrative expenses associated with lower professional service and employee procurement costs, and reduced amortization expense resulting from the write-down of certain intangible assets to their net realizable values last year. Interest expense decreased $52 due to the expiration of swap agreements at one of the Company's subsidiaries. During the period, other income increased to $377 from the other expense of $389 recorded last year due to the absence of charges associated with the write-off of certain non-compete and consulting fees recorded last year in conjunction with the Company's assessment of customer and market trends. Also contributing to the increase was the settlement of a lawsuit for a lower amount than originally estimated, increased gains on fixed asset sales and lower balance deficiency fees. Income tax expense increased $83 compared to the same period last year. The increase is associated with the absence of domestic tax credits recorded in conjunction with the pre-tax loss recorded last year. RESULTS OF OPERATIONS FOR THE 39 WEEKS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 24, 1994 Net sales increased $192 (1%) compared to last year due to increased sales of the home improvement product category and increased sales at the Company's Canadian subsidiary. These 12 13 increases were largely offset by reduced activity at the Company's other foreign subsidiaries and lower export sales. Cost of goods sold as a percentage of sales increased to 61.8% from 59.1% last year. Excluding the inventory reserves recorded last year as part of the assessment of customers and market trends, the cost of goods sold percentage for 1994 was 57.6%. The increase compared to 1994 excluding the additional inventory reserves recorded last year is due to increased resin prices, a decrease compared to an increase last year in overhead absorption and provisions to inventory reserves. Also contributing to the increase in the cost of goods sold percentage were increased electricity costs. Electricity costs were lower in 1994 due to refunds which ended in the fourth quarter of last year. On a year-to-date basis operating expenses decreased to 38.4% of sales compared to 43.8% last year. The decrease is primarily associated with the absence of actual expenditures or reserves for bad debt, product development, employee costs and increased amortization associated with the write-down of certain intangible assets recorded last year in conjunction with the assessment of customers and market trends. In addition, the operating expense percentage decreased due to lower amortization of certain intangible assets due to the write-down last year of these assets to their net realizable values. Also contributing to the reduced operating expense percentage were lower general and administrative expenses resulting from decreased employee procurement, contributions, franchise tax and professional service expense. Interest expense decreased to $685 from $813 primarily as a result of the non-renewal of a swap agreement at one of the Company's subsidiaries. Other income increased to $613 compared to other expense of $309 for the comparable period last year. The increase is associated with the absence of certain non-compete and 13 14 consulting fees written off last year as part of the Company's assessment of customers and market trends. Also contributing to the increase was the settlement of a lawsuit for a lower amount than originally estimated, increased gains on fixed asset sales, foreign currency gains and lower balance deficiency fees. Income tax expense decreased to $14 from $117 due to lower domestic taxes associated with net operating loss carryforwards available to the Company. FINANCIAL CONDITION Working capital increased $1,059 during the 39 week period primarily due to an increase in accounts receivable. Cash provided by operating activities increased $385 compared to the 39 week period last year. The increase is primarily associated with the reduction in the net loss and the receipt of the settlement payment from the patent infringement suit. Also contributing to the increase was a lower increase in accounts receivable and the receipt of refundable income taxes. These positive cash inflows were partially offset by decreases in accounts payable and accrued liabilities compared to increases last year. The positive cash inflows were also reduced by lower intangible amortization resulting from the write-down of certain intangible assets last year and a lower decrease in inventory levels. Sales of the Company's products are generally lower in the first and fourth quarter of the calendar year. Net earnings vary proportionately more than the variation in sales due to the effect of fixed costs. Results of operations for the 13 and 39 week periods ended September 30, 1995 are not necessarily indicative of the results to be expected for the 52 week period ending December 30, 1995. 14 15 As of September 30, 1995 the Company's working capital was $12,085. Management believes that this capital is adequate to finance foreseeable operating needs. The Company's line of credit has expired and the Company is currently negotiating for an expanded line of credit to finance acquisitions and short-term borrowing requirements. 15 16 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - None ITEM 2. Changes in Securities - Not Applicable ITEM 3. Default Upon Senior Securities - Not Applicable ITEM 4. Submission of Matters to a Vote of Security Holders - Not Applicable ITEM 5. Other Information - On November 7, 1995 the Company announced that it had signed a letter of intent to acquire Studio RTA for a combination of cash and stock. Studio RTA is a Vernon, California marketer of computer furniture, multimedia workstations and organization accessories with projected 1995 sales of $22 million. The Company announced that it plans to operate Studio RTA as a wholly owned stand-alone subsidiary. ITEM 6. A. Exhibits And Reports - Not applicable. 16 17 SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SELFIX, INC. By: /s/ James E. Winslow ------------------------- James E. Winslow Senior Vice President Chief Financial Officer Dated: November 10, 1995 17