Heelys, Inc. reported net sales for the third quarter ended Sept. 30 were $10.8 million compared to net sales of $23.8 million in the corresponding period a year ago.


Gross profit was $3.2 million, or 29.6%, compared to gross profit of $7.9 million, or 33.3%, in the third quarter of 2008. Selling, general and administrative expenses, excluding litigation settlements and related costs, were $3.6 million compared to $6.6 million in the third quarter of last year. The company reported a net loss of $1.1 million, or 4 cents per share per fully diluted share versus net income of $0.8 million, or 3 cents per fully diluted share in the third quarter of 2008.

Sequential Quarterly Comparisons


Net sales for the third quarter of 2009 were $10.8 million compared to net sales of $12.4 million in the second quarter of 2009. Gross profit was $3.2 million, or 29.6%, compared to $3.6 million, or 28.9%, for the second quarter of this year. Selling, general and administrative expenses, excluding litigation settlements and related costs, were $3.6 million compared to $4.0 million in the second quarter of 2009. Litigation settlements and related costs were $0.3 million for the third quarter of 2009 compared to $3.1 million during the second quarter of 2009. These costs are related to the lawsuits filed in the latter part of 2007 and early part of 2008 in connection with the company's initial public offering. During the second quarter of 2009, the company reached proposed settlements with regards to these lawsuits.


The company's insurance policies are expected to fund the majority of the settlement amounts and related legal defense costs. The company's remaining liability, of approximately $2.8 million, of these settlement amounts has been accrued for as of September 30, 2009. The ompany reported a net loss of $1.1 million, or 4 centd per fully diluted share in the third quarter of 2009 versus a net loss of $1.6 million, or 6 cents per fully diluted share in the second quarter of this year.

Tom Hansen, chief executive officer of the Company, commented, “Like our retail partners, our business continues to be adversely impacted by the tough economy and the holiday season remains a major question mark. However, we have made significant reductions in inventory and continue to scrub every aspect of our business to find more operating efficiencies and reduce costs in every possible way. And we are working diligently to rebuild the brand and increase visibility as well as implementing several new product development initiatives.”


Balance Sheet


As of September 30, 2009, the company had cash and cash equivalents of $68.4 million compared with $93.2 million as of September 30, 2008 and $68.4 million as of December 31, 2008. Inventory as of September 30, 2009 decreased to $9.8 million versus $18.4 million as of September 30, 2008 and $12.1 million as of December 31, 2008.


 


















































































































































































































































































































































































































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HEELYS, INC. AND SUBSIDIARIES 
Condensed Consolidated Statements of Operations
(Unaudited)
(amounts in thousands, except for per share data)
 

























 




 


Three-month period ended



 


Nine-month period ended





 


September 30,



 


September 30,



 


September 30,



 


September 30,





2008

2009

2008

2009













 
Net sales
$ 23,825

$ 10,751

$ 55,143

$ 32,402
Cost of sales

15,880  

7,572  

40,179  

22,787  

Gross profit

7,945


3,179


14,964


9,615













 
Selling, general and administrative expenses

6,552


3,617


17,696


12,119
Litigation settlements and related costs

271  

258  

584  

4,087  

Income (loss) from operations

1,122


(696 )

(3,316 )

(6,591 )













 
Other (income) expense, net

(57 )

(239 )

(2,455 )

(724 )
Income (loss) before income taxes

1,179


(457 )

(861 )

(5,867 )













 
Income tax expense (benefit)

424  

645  

(175 )

(1,865 )













 
Net income (loss)
$ 755  
$ (1,102 )
$ (686 )
$ (4,002 )













 
Net income (loss) per share:












Basic
$ 0.03

$ (0.04 )
$ (0.03 )
$ (0.15 )

Diluted
$ 0.03  
$ (0.04 )
$ (0.03 )
$