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 March 30, 1996 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. Securities registered pursuant to Section 12(b) of the Act: None Name of Each Exchange On Which Registered - ---------------------- None Securities registered pursuant to Section 12 (g) of the Act: Title of Each Class - ------------------- Common, Par Value $0.01 Per Share 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 April 24, 1996 - 3,878,094 2 SELFIX, INC. AND SUBSIDIARIES INDEX Page Number ------ Part I. Financial Information 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 7 Management's Discussion and Analysis of Results of 10 Operations and Financial Condition Part II. Other Information 13 Signatures 14 2 3 PART I - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (unaudited) ________________________________________________________________________________ March 30, December 30, ASSETS 1996 1995 ----------- ------------- Cash and cash equivalents........................... $ 1,889 $ 2,982 Investments in marketable securities -- available for sale ........................................... 233 516 Accounts receivable................................. 5,365 4,690 Notes receivable and other receivables.............. 65 83 Refundable income taxes............................. 222 222 Inventories......................................... 4,942 5,151 Prepaid expenses and other current assets........... 206 175 ---------- --------- Total current assets.............................. 12,922 13,819 PROPERTY, PLANT AND EQUIPMENT......................... 21,146 21,231 Less accumulated depreciation and amortization...... 13,199 12,909 ---------- --------- 7,947 8,322 LAND.................................................. 131 131 ---------- --------- 8,078 8,453 OTHER ASSETS Intangible assets................................... 2,660 2,693 Other............................................... 60 11 ---------- --------- Total other assets................................ 2,720 2,704 ---------- --------- TOTAL ASSETS $ 23,720 $ 24,976 ========== ========= The accompanying notes are an integral part of these statements. 3 4 PART I - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED (Dollars in thousands) (unaudited) ________________________________________________________________________________ March 30, December 30, 1996 1995 ---------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations...................... $ 877 $ 892 Accounts payable................................................. 2,015 1,334 Accrued liabilities.............................................. 4,019 4,881 -------- -------- Total current liabilities...................................... 6,911 7,107 LONG-TERM OBLIGATIONS - net of current maturities....................................................... 7,015 7,022 STOCKHOLDERS' EQUITY Preferred stock - authorized 500,000 shares; - - $.01 par value; none issued.................................... Common stock - authorized 7,500,000 shares; $.01 par value; issued and outstanding, 3,878,094 shares at March 30, 1996 and 3,861,784 at December 30, 1995............................ 39 38 Additional paid-in-capital....................................... 10,825 10,766 Retained earnings (deficit)...................................... (626) 490 Cumulative foreign currency translation adjustment............... (186) (192) Unrealized net holding gains on available-for-sale securities ... 6 9 Common stock held in treasury at cost (58,762 shares) ........... (264) (264) -------- -------- Total stockholders' equity..................................... 9,794 10,847 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,720 $ 24,976 ======== ======== The accompanying notes are an integral part of these statements. 4 5 PART I - 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 Week Ended March 30, 1996 April 1, 1995 -------------- ------------- Net sales............................................ $ 8,625 $ 10,742 Cost of goods sold................................... 5,767 6,712 ----------- ----------- Gross profit..................................... 2,858 4,030 Operating expenses................................... 3,826 4,170 ----------- ----------- Operating (loss)................................. (968) (140) Other income (expense) Interest (expense)................................. (180) (217) Other income - net................................. 32 123 ----------- ----------- (148) (94) ----------- ----------- (Loss) before income taxes....................... (1,116) (234) Income tax expense................................... - 12 ----------- ----------- Net (loss)....................................... (1,116) (246) Retained earnings at beginning of period............. 490 4,500 ----------- ----------- Retained earnings at end of period................... $ (626) $ 4,254 =========== =========== Net loss per common and common equivalent shares..... $ (0.29) $ (0.07) Number of common and common equivalent shares........ 3,817,181 3,603,637 The accompanying notes are an integral part of these statements. 5 6 PART I - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) ________________________________________________________________________________ Thirteen Week Ended March 30, 1996 April 1, 1995 -------------- -------------- Cash flows from operating activities Net (loss).............................................. $ (1,116) $ (246) Adjustments to reconcile net (loss) to net cash provided by operating activities Depreciation and amortization....................... 562 647 Amortization of intangible assets................... 43 164 Provision for losses on accounts receivable......... 34 34 (Gain) loss on sale of fixed assets.................. 13 (11) Amortization of bond premium........................ 3 - Changes in assets and liabilities (Increase) in accounts receivable..................... (709) (1,334) (Increase) decrease in inventories.................... 209 (749) Decrease in refundable income taxes.................. - 256 (Increase) decrease in prepaid expenses and deposits.. (34) 20 (Increase) in other assets............................ (38) - Increase (decrease) in accounts payable............... 681 (265) (Decrease) in accrued liabilities..................... (733) (175) Decrease in notes and other receivables............... 7 1,676 --------- -------- Total adjustments................................... 38 263 --------- -------- Net cash provided by (used in) operations........... (1,078) 17 Cash flows from investing activities Purchase of property, plant and equipment (net)........ (330) (346) Proceeds from maturity of marketable securities........ 280 - Restricted cash - Industrial Revenue Bond.............. - 5 --------- -------- Net cash (used) by investing activities............. (50) (341) Cash flows from financing activities Payments on borrowings.................................. (16) (102) Reduction of capital lease obligation................... (7) (6) Issuance of common stock................................ 59 - --------- -------- Net cash provided (used) by financing activities.... 36 (108) --------- -------- Effect of exchange rate changes on cash................... - (5) Net (decrease) in cash and cash equivalents......... (1,093) (437) --------- -------- Cash and cash equivalents at beginning of period.......... 2,982 4,859 --------- -------- Cash and cash equivalents at end of period................ $ 1,889 $ 4,422 ========= ======== Supplemental disclosures of cash flow information Cash (refunded) paid during the period for Interest and swap fees................................ $ 140 $ 206 Income taxes, net..................................... $ 1 $ (243) The accompanying notes are an integral part of these statements. 6 7 PART 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 March 30, 1996 and for the thirteen weeks ended March 30, 1996 and April 1, 1995 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 financial statements include certain reclassifications of 1995 information which were necessary to present the results of operations and change in financial condition on a consistent basis with 1996. 4. Inventories are summarized as follows (in thousands): March 30, December 30, 1996 1995 --------- ------------ Finished Goods $2,186 $3,165 Work-in-Process 1,439 893 Raw Materials 1,317 1,093 ------ ------ $4,942 $5,151 ====== ====== 5. No provision was made for income taxes in 1996 due to net operating loss carryforwards available to the Company. The provision for income taxes for 1995 reflects the taxes on income of foreign subsidiaries. 7 8 PART I - FINANCIAL STATEMENTS FORM 10-Q SELFIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) ________________________________________________________________________________ 6. Earnings per share have been computed by dividing net earnings (loss) for 1996 and 1995 by 3,817,181 and 3,603,637 of common shares respectively. Common share equivalents are not included in the computation since their effect under the treasury stock method would be anti-dilutive. 7. During the fourth quarter of 1995, the Company recorded a $2.1 million charge to exit certain unprofitable product lines, close the Company's Canadian facility and move the Canadian operations to the Chicago manufacturing and distribution facilities. As of December 30, 1995 approximately $.6 million of obsolete inventory reserves, $.2 million of accrued legal and accrued severance and $.5 million of accrued facility closing costs remained on the Company's books. The amount of cash paid for legal and severance benefits, obsolete inventory disposed of and cash paid and fixed asset write-offs charged to facility closing costs in 1996 is detailed as follows: FACILITY LEGAL AND INVENTORY CLOSING SEVERANCE RESERVES COSTS BENEFITS -------- ----- -------- Balance at 12/30/95 $.6 million $.5 million $.2 million Charges to reserves .3 million .2 million .1 million ---------- ---------- ---------- Balance at 3/30/96 $.3 million $.3 million $.1 million =========== =========== =========== The payouts will be substantially completed by the end of 1996. 8. On February 8, 1996, the Company's Board of Directors granted 26,000 options to certain key employees at a price of $4.625 per share which equaled the market price on the date of grant. 8 9 PART I - FINANCIAL STATEMENTS FORM 10-Q SELFIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) ________________________________________________________________________________ 9. Subsequent events: On April 12, 1996 the Company completed the consolidation of its banking relationships and entered into a new Credit Agreement. The Credit Agreement provides an $8,000 line of credit subject to asset based availability formulas and a line of credit to support letters of credit required for the Company's Industrial Development Finance Authority Bonds. All of the Company's assets are pledged as collateral in support of the Credit Agreement. At April 24, 1996 there were no borrowings outstanding under the asset based line of credit. On April 12, 1996 the Company dismissed Grant Thornton LLP as its independent public accountants. The Company's Board of Directors approved the audit committee's recommendation to change accountants. The Company has engaged Arthur Andersen LLP as its new independent public accountants effective with the dismissal of its former accountants. 10. On January 12, 1996, the Company issued 16,310 shares of common stock to various employees in conjunction with the 1995 Employee Stock Purchase Plan. 9 10 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition In the discussion and analysis that follows, all references to 1996 and 1995 refer to the 13 week periods ended March 30, 1996 and April 1, 1995. The following amounts are in thousands of dollars. Results of operations for the 13 weeks ended March 30, 1996 and April 1, 1995. Net sales decreased $2,117 (20%) from 1995 due to lower sales at both of the Company's home improvement and housewares segments. Sales of the home improvement segment decreased approximately 27% during the period as a result of the inclement weather primarily in the northeastern United States. The Company anticipates that sales of this segment will improve during the summer as deferred home improvement projects are initiated. Sales of the housewares segment declined approximately 18% due to inventory restrictions implemented by certain key retail customers, the discontinuation of certain products and the absence in 1996 of pipeline fill sales to a certain customer. The Company anticipates that sales will improve as inventory adjustments are completed. Additionally, the Company anticipates that new products introduced during the first quarter will favorably impact sales in the second half of the year. Gross profit margins declined from 37.5% to 33.1%. The decrease in the gross margin percentage is primarily associated with lower overhead absorption due to reduced activity, labor inefficiencies and increased tool repairs at the Company's home improvement segment. The gross profit margin at the housewares segment was essentially unchanged during the period. Lower overhead absorption associated with the reduction in housewares sales was offset by improved gross margins resulting from the 1995 decision to exit certain unprofitable product lines as well as lower resin prices. 10 11 Operating expenses at the housewares segment decreased approximately 11% from last year primarily due to personnel reductions and the absence this year of a marketing expense accrual. In addition, volume related reductions for freight and commissions as well as lower amortization expense associated with the 1995 write-downs of certain intangible assets contributed to the decrease in operating expense at the housewares segment. Operating expenses at the home improvement segment increased approximately 11% from 1995 primarily due to increased marketing and selling expenses for collateral costs for new product brochures, salaries and benefits, patent fees, convention costs and product samples. These increases were more than offset by the operating expense decrease at the housewares segment. Interest expense decreased $37 from last year due to 1995 debt reductions totaling $2,400. Other income decreased $91 compared to last year primarily as a result of reduced interest income due to lower cash balances and the maturity of interest-bearing marketable securities. Income tax expense decreased $12 compared to last year. No tax expense was recorded in 1996 due to the availability of net operating loss carryforwards. FINANCIAL CONDITION Working capital decreased $701 since cash was needed to fund the net loss during the period. Cash used by operations increased $1,095 compared to last year due to the 1995 collection of a patent infringement suit ($1,600). Also contributing to the increase in cash used by operations was the higher net loss and the funding of severance and other items related to the closing of the Company's Canadian facility. On the positive side, efforts to control inventories and reductions in receivables generated increased cash flow over last year. 11 12 On April 12, 1996 the Company completed the consolidation of its banking relationships and entered into a new Credit Agreement. The Credit Agreement provides an $8,000 line of credit subject to asset based availability formulas and a line of credit to support letters of credit required for the Company's Industrial Development Finance Authority Bonds. All of the Company's assets are pledged as collateral in support of the Credit Agreement. Sales of the Company's home improvement products are generally lower in the first and fourth quarter of the calendar year. Net earnings vary proportionately more than sales due to the effect of fixed costs. Results of operations for the 13 week period ended March 30, 1996 are not necessarily indicative of the results to be expected for the 52 week period ending December 28, 1996. 12 13 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 March 29, 1996 Theodore W. Lucore, Senior Vice President Operations, retired. ITEM 6. A. Exhibits and Reports There were no reports on Form 8-K filed during the thirteen weeks ended March 30, 1996 13 14 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: May 7, 1996 14