Proposed Ticker: (HLYS)
Underwriters: Bear Stearns, Wachovia Securities, JPMorgan, CIBC World Markets
Maximum Offering: $115 million
We are a designer, marketer and distributor of innovative, action sports-inspired products under the HEELYS brand targeted to the youth market. Our primary product, HEELYS-wheeled footwear, is patented, dual-purpose footwear that incorporates a stealth, removable wheel in the heel. HEELYS-wheeled footwear allows the user to seamlessly transition from walking or running to skating by shifting weight to the heel. Users can transform HEELYS-wheeled footwear into comfortable street footwear by removing the wheel. We believe that the growing exposure of our brand will allow us to selectively introduce additional product categories by taking advantage of our expertise in product development and sourcing, strong retail relationships and knowledge of our target consumer.
Financial Highlights: Sales are through distribution channels including full-line sporting goods retailers, specialty apparel and footwear retailers and select department stores and online retailers. The company had 700 accounts in more than 7,400 stores in the U.S. at the end of June. For the first half of the year, net sales grew $28.5 million (177.2%) to $44.6 million. In terms of number of units sold, these grew by 886,000 pairs, or 174.8%, to 1,393,000 at the end of June. Domestic sales grew 207.9%, and international sales grew 59.5%. In 2005, net sales grew $22.6 million (106.3%) over 2004. Sales grew locally, but declined internationally "primarily the result of lower sales in Japan that we believe occurred primarily due to competing counterfeit and knockoff products."
Gross profit increased from 31.8% in 2004 to 34.1% in 2005, and from 34.9% in H1 05 to 35% in H1 06. Net income for 2005 was $4.3 million, up from $803k in 2004 (9.9% of 05 sales, compared with 3.8% of 04 sales). For the first half of the year, net income grew from $1.6 million in 05 (10.1% of sales) to $5.9 million in 06 (13.2%).
Use of Proceeds:$4 million will repay an outstanding line of credit note borrowed to repurchase shares from two of the company's directors. It will also pay any outstanding amount in the company's $25 million revolving credit facility.
Competition: Particularly outside of the U.S., counterfeit products are a key source of competition: "In certain international markets where enforcing our intellectual property rights is more difficult than in the United States, we compete against counterfeit, knockoff and infringing products, which typically are of lower quality and are offered at lower prices.".
Management: Michael Staffaroni is the company's CEO; Roger Adams, founder and Director, interestingly comes from a mental health counseling background:
Mr. Staffaroni has served as our Chief Executive Officer since January 2001, as our President since May 2006 and as one of our directors since August 2006. Before joining us as Chief Executive Officer, Mr. Staffaroni served as our full-time consultant from August 2000 to January 2001. From September 1995 to February 2000, Mr. Staffaroni was Vice President of the Rollerblade division of Benetton Group, S.p.A., a worldwide design, marketing, manufacturing and distribution company. From May 1992 to September 1995, Mr. Staffaroni served as Vice President of Research, Design and Development at L.A. Gear, an athletic footwear company. Mr. Staffaroni began his footwear career in 1976 and during his career has been involved in product development, marketing, operations and general management. Mr. Staffaroni attended the University of Wisconsin-Milwaukee.
Mr. Adams is the inventor of HEELYS-wheeled footwear. Mr. Adams has been one of our directors since he founded our company in 2000, and served as our President and Secretary until May 2006, when he became our Director of Research and Development. Before inventing HEELYS-wheeled footwear and founding our company, Mr. Adams served as a crisis associate, mental health counselor, mental health supervisor and regional coordinator for the State of Oregon from 1990 to 1995. Mr. Adams has extensive industry experience and has been involved in the skate industry for over 40 years, including operating his family's skate centers and working in his family's skate distribution company and skate-related manufacturing company. Mr. Adams received a Bachelor of Arts degree in psychology and a graduate degree in clinical counseling and independent studies from Pacific Lutheran University. Mr. Adams is the first cousin of Richard E. Middlekauff, one of our directors.
Ownership: The ownership structure has not been spelled out in the S1. Capital Southwest Venture Corporation is named as a more than 5% owner.