<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to ______________
Commission File No. 000-29662
RollerBall International Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 95-4478767
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
9255 Doheny Road, Suite 2705 Los Angeles, CA 90069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 275-5313
_________________________________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
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 _____
4,754,693 shares of Common Stock, par value $.001 per share, were outstanding at
November 11, 1998.
Page 1 of 11
<PAGE> 2
ROLLERBALL INTERNATIONAL INC.
FORM 10-QSB
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Balance Sheets -
September 30, 1998 and December 31, 1997 (Audited) 3
Statements of Operations -
Three Months and Nine Months ended September 30, 1998
and 1997 4
Statements of Cash Flows -
Nine months ended September 30, 1998 and 1997 5
Notes to Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds 10
Signatures 11
Page 2 of 11
<PAGE> 3
PART I - FINANCIAL INFORMATION
RollerBall International Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 86,252 $ 344,208
Accounts receivable, net of allowance for doubtful
accounts of $50,000 and $0 for September 30, 1998
and December 31, 1997, respectively 922,073 43,508
Inventory 1,310,151 479,518
Debt issuance costs 150,461 623,885
Prepaid expenses 350,094 126,387
----------- -----------
Total Current Assets 2,819,031 1,617,506
Deferred stock offering costs -- 234,594
Property and equipment, net 419,310 435,292
Intangible assets, net of accumulated amortization
of $91,825 (1998) and $61,035 (1997) 564,875 510,464
----------- -----------
Total Assets $ 3,803,216 $ 2,797,856
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 711,006 $ 393,655
Accrued expenses 501,862 973,231
Notes payable to stockholders 57,000 250,000
Advances from stockholders 15,159 20,659
Debt 100,000 3,475,000
----------- -----------
Total Current Liabilities 1,385,027 5,112,545
Note Payable - Long-term -- 100,000
Commitments
Stockholders' Equity (Deficit):
Preferred stock - $.10 par value, 10,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock - $.001 par value, 50,000,000 shares authorized;
4,754,693 issued and outstanding (1998), 2,683,568 (1997) 4,755 2,684
Additional paid in capital 9,996,307 2,718,152
Accumulated deficit (7,582,873) (5,135,525)
----------- -----------
Total Stockholders' Equity (Deficit) 2,418,189 (2,414,689)
----------- -----------
Total Liabilities and Stockholders' Equity (Deficit) $ 3,803,216 $ 2,797,856
=========== ===========
</TABLE>
See accompanying notes
Page 3 of 11
<PAGE> 4
RollerBall International Inc.
Statements of Operations
<TABLE>
<CAPTION>
Nine months ended September 30, Three months ended September 30,
------------------------------ -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 1,641,364 $ 1,762,400 $ 454,891 $ 433,093
Cost of sales 995,849 1,160,044 228,695 280,929
----------- ----------- ----------- -----------
Gross profit 645,515 602,356 226,196 152,164
Operating expenses:
Selling and marketing 1,298,531 997,060 630,500 385,459
General and administrative 1,149,913 814,222 432,223 279,992
----------- ----------- ----------- -----------
Total operating expenses 2,448,444 1,811,282 1,062,723 665,451
----------- ----------- ----------- -----------
Loss from operations (1,802,929) (1,208,926) (836,527) (513,287)
Interest expense 644,221 1,022,663 162,246 479,814
----------- ----------- ----------- -----------
Loss before provision for income taxes (2,447,150) (2,231,589) (998,773) (993,101)
Provision for income taxes 200 -- -- --
----------- ----------- ----------- -----------
Net loss $(2,447,350) $(2,231,589) $ (998,773) $ (993,101)
=========== =========== =========== ===========
Net loss per common share
Basic $ (0.57) $ (0.66) $ (0.21) $ (0.28)
=========== =========== =========== ===========
Diluted $ (0.57) $ (0.66) $ (0.21) $ (0.28)
=========== =========== =========== ===========
Weighted average common shares
outstanding
Basic 4,285,690 3,361,168 4,754,693 3,576,102
=========== =========== =========== ===========
Diluted 4,285,690 3,361,168 4,754,693 3,576,102
=========== =========== =========== ===========
</TABLE>
See accompanying notes
Page 4 of 11
<PAGE> 5
RollerBall International Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended September 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,447,350) $(2,231,589)
Adjustments to reconcile net loss to net cash used in
operating activities:
Allowance for doubtful accounts 50,000 --
Depreciation and amortization 134,307 99,361
Amortization of debt issuance costs 473,424 834,101
Change in operating assets and liabilities:
Accounts receivable (928,565) (97,543)
Due from supplier 56,218 --
Inventory (830,633) (78,779)
Prepaid expenses (223,708) 30,692
Accounts payable 267,161 (82,023)
Accrued expenses (282,869) 606,936
----------- -----------
Net cash used in operating activities (3,732,015) (918,844)
INVESTING ACTIVITIES
Purchases of property and equipment (87,534) (204,044)
Increase in intangible assets (85,201) (166,677)
----------- -----------
Net cash used in investing activities (172,735) (370,721)
FINANCING ACTIVITIES
Deferred stock offering costs -- (45,558)
Net proceeds from issuance of common stock 5,007,448 --
Proceeds from debt -- 700,000
Payments on debt (1,300,000) --
Payment on Notes Payable (193,000) --
Proceeds on loans to stockholders -- 115,000
Payments on loans to stockholders (5,500) (6,484)
Exercise of warrants 137,846 242,160
Debt issuance costs -- (97,000)
----------- -----------
Net cash provided by financing activities 3,646,794 908,118
----------- -----------
Net decrease in cash (257,956) (381,447)
Cash at beginning of period 344,208 394,667
----------- -----------
Cash at end of period $ 86,252 $ 13,220
=========== ===========
</TABLE>
See accompanying notes
Page 5 of 11
<PAGE> 6
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization
RollerBall International Inc. (the "Company") develops, manufacturers,
distributes and markets inline skates, and related accessories under the
RollerBall trademark in the United States and throughout Europe, Asia and North
America through independent sales representatives and distributors. The Company
was incorporated in Delaware on March 7, 1994. The Company's fiscal year ends on
December 31st.
On April 8, 1998, the Company completed an initial public offering (the
Offering) of 1,250,000 shares of the Company's common stock at a price of $5.00
per share. The proceeds to the Company, net of underwriting discounts and
commissions was $5.4 million, and was $5.0 million net of offering expenses.
2. Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the results
of operations for the periods presented have been included.
The financial data at December 31, 1997 is derived from audited
financial statements which are included in the Company's Form SB-2 (No.
333-33567) which closed on April 8, 1998 and should be read in conjunction with
the audited financial statements and notes thereto. Interim results are not
necessarily indicative of results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Initial Public Offering
On March 31, 1998, the Company's Registration Statement on Form SB-2
was deemed effective and on April 8, 1998, the offering closed and the Company
received $5.0 million in proceeds, net of underwriting discounts and commissions
and offering expenses. In connection with the offering, the Company's
outstanding 12% Debentures in the principal amount of $1,859,525 converted into
equity on the effective date and
Page 6 of 11
<PAGE> 7
$1,500,000 of debt was paid in cash. In addition, immediately prior to the
effective date of the Registration Statement, a reverse stock split was effected
on the basis of .594237 to 1. Further, Mr. Jack Forcelledo, the Company's
founder, chairman and principal stockholder agreed to surrender for cancellation
600,000 shares of common stock. All references to share and per share amounts
have been retroactively restated to reflect the stock split and the
cancellation. Lastly, 862,540 shares of common stock and 247,936 warrants were
issued in connection with certain Bridge Loans and Notes Payable.
4. Net Loss Per Common Share
Net loss per common share has been computed (Basic and diluted) for all
periods presented and is based on the weighted average number of shares
outstanding during the period including the 12% Subordinated Convertible
Debentures ("12% Debentures") which automatically converted upon the closing of
the Company's initial public offering (using the as if converted method from the
date of issuance), the shares issued to holders of certain Bridge Notes and
Notes Payable, and all that were issued upon closing of the Company's initial
public offering. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletins, common stock equivalents issued during the 12-month period prior to
the initial public offering are included in the calculation as if they were
outstanding for all periods (using the treasury stock method at the assumed
public offering price). There are no common stock equivalents resulting from
dilutive stock options.
Page 7 of 11
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SAFE HARBOR STATEMENT
Certain statements in this Form 10-QSB, including information set forth
under Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 (the Act). The Company
desires to avail itself of certain "safe harbor" provisions of the Act and is
therefore including this special note to enable the Company to do so.
Forward-looking statements in this Form 10-QSB or hereafter included in other
publicly available documents filed with the Securities and Exchange Commission,
reports to the Company's stockholders and other publicly available statements
issued or released by the Company involve known and unknown risks, uncertainties
and other factors which could cause the Company's actual results, performance
(financial or operating) or achievements to differ from the future results,
performance (financial or operating) or achievements expressed or implied by
such forward-looking statements. Such future results are based upon management's
best estimates based upon current conditions and the most recent results of
operations.
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1997
Net sales for the three months ended September 30, 1998 and 1997 were
$454,891 and $433,093, respectively, which is an increase of $21,798 or
approximately 5%. Net sales for the nine months ended September 30, 1998 and
1997 were $1,641,364 and $1,762,400 respectively, which is a decrease of
$121,036 or approximately 7%. This decrease was primarily attributable to
overall industry excess inventory at the retail level from the major inline
skate manufacturers combined with heavily discounted prices. This resulted in
lower than anticipated sales volume for the Company based on these competitive
forces. Continuous competitive price cutting in the inline skating market has
made new product introductions more difficult.
Gross margin for the three months ended September 30, 1998 was 49.7%
which represents an increase of 14.6% as compared to the three months ended
September 30, 1997. Gross margin for the nine months ended September 30, 1998
was 39.3% which represents an increase of 5.1% as compared to the nine months
ended September 30, 1997. The increases relate to larger quantities of direct
response sales in the periods compared, which yield higher margins. In addition,
more 4-ball models, which contain higher margins than 2-ball models, were sold
in the three and nine months ended September 30, 1998 as compared to the same
periods in 1997. Lastly, the Company has experienced cost reductions as a result
of negotiations with its overseas suppliers in fiscal 1998 as compared to fiscal
1997.
Page 8 of 11
<PAGE> 9
Selling and marketing expenses for the three months ended September 30,
1998 and 1997 were $630,500 and $385,459, respectively, which represents an
increase of $245,041, or 63.6%. Selling and marketing expenses for the nine
months ended September 30, 1998 and 1997 were $1,298,531 and $997,060,
respectively, which represents an increase of $301,471, or 30.2%. The increases
are primarily due to the Company's programs designed to increase awareness of
its products through radio and print advertising as well as sponsorships of
nationally televised game, fitness and variety shows. In addition, selling
consultants and increased warehousing costs were experienced due to increased
production and the resulting increase in levels of inventory during the nine
months ended September 30, 1998 as compared to the related period ended
September 30, 1997.
General and administrative expenses for the three months ended
September 30, 1998 and 1997 were $432,223 and $279,992, respectively, which
represents an increase of $152,231, or 54.4%. General and administrative
expenses for the nine months ended September 30, 1998 and 1997 were $1,149,913
and $814,222, respectively, which represents an increase of $335,691, or 41.2%.
The increases were primarily due to an increase in salaries, primarily the
addition of a Chief Financial Officer, Marketing Manager and consulting expenses
for a public relations firm. In addition, the Company experienced a related
increase in insurance expenses, primarily the addition of officer's life
insurance and Directors and Officers insurance. Several of these expenses are
those associated with being a publicly traded company.
The Company's interest expense for the three months ended September 30,
1998 and 1997 was $162,246 and $479,814, respectively, which represents a
decrease of $317,568. Interest expense for the nine months ended September 30,
1998 and 1997 was $644,221 and $1,022,663, respectively, which represents a
decrease of $378,442. These decreases were primarily attributable to the
Company's decreased interest payable on debt repaid from the proceeds of the
initial public offering. In addition, amortization of debt issuance costs
included in interest have decreased in 1998 as the related notes have matured.
Net loss for the three months ended September 30, 1998 and 1997 was
$998,773 and $993,101, respectively, which represents a increase of $5,472, or
0.6%. Net loss for the nine months ended September 30, 1998 and 1997 was
$2,447,350 and $2,231,589, respectively, which represents an increase of
$215,761, or 9.7%. The increase in net loss for these periods is primarily
attributable to the increase in operating expenses, primarily marketing and
advertising, needed to increase awareness of the Company's products in the
marketplace. These expenditures were based on anticipated sales levels that were
not achieved during the three and nine months ended September 30, 1998 due to
the market conditions for inline skating products which include excess inventory
and heavy discounting. Management feels that although sales decreased during the
nine months ended September 30, 1998, gross margin increased, and therefore with
higher volume, the Company anticipates greater gross margin dollars to
contribute to operating expenses.
Page 9 of 11
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
In April 1998, the Company received $6,250,000 in gross proceeds for the
issuance of 1,250,000 shares of common stock pursuant to its initial public
offering. Net proceeds totaled approximately $5.0 million after expenses
associated with the offering. Upon completion of the Company's initial public
offering, $2,259,525 of notes were automatically converted into equity and
$1,500,000 of notes were paid in full with the proceeds from the offering. Due
to unexpected poor sales for the nine months ended September 30, 1998, the
Company will require additional capital to continue operations.
The Company is currently in discussions with several banking institutions with
respect to obtaining a credit line facility for working capital and letter of
credit purposes. No assurance can be given that such discussions will result in
additional funding.
Property and equipment expenditures totaled $87,534 and expenditures for other
assets totaled $85,201 for the nine months ended September 30, 1998.
Expenditures for other assets primarily include legal fees paid to develop
various patents and trademarks.
The Company has conducted a review to identify which systems, both internal and
external, will be affected by the "Year 2000" problem. The majority of the
Company's business processing applications operate on a network computer system.
Management believes the network hardware and operating system are now Year 2000
compliant as of September 30, 1998. If the current systems are not fully Year
2000 compliant, the Company estimates that the cost associated with becoming
Year 2000 compliant will not materially affect its future operating results or
financial condition.
While the Company currently believes that it will be able to implement its Year
2000 conversion project in a timely manner, failure to do so could have a
material adverse impact on the Company's operations.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On April 8, 1998, the Company closed its initial public offering in which it
sold 1,250,000 shares of common stock at a price of $5.00 per share for gross
proceeds of $6,250,000. Net of underwriting commissions and offering expenses,
the Company received net proceeds of approximately $5,000,000. As of September
30, 1998, the Company has used approximately $1,200,000 of the proceeds for
inventory purchases, $1,500,000 for repayment of Notes and Loans Payable,
$89,000 for molds and tooling purchases, $161,000 for marketing and advertising,
$122,000 for the payment of accrued officer's salary, $485,000 for accrued
expenses and the remainder for working capital and operating purposes.
Page 10 of 11
<PAGE> 11
SIGNATURES
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.
ROLLERBALL INTERNATIONAL INC.
November 11, 1998 /s/ Jack Forcelledo
DATE JACK FORCELLEDO
PRESIDENT & CHIEF EXECUTIVE OFFICER
/s/ Kenneth B. Teasdale
KENNETH B. TEASDALE
CHIEF FINANCIAL OFFICER
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 86,252
<SECURITIES> 0
<RECEIVABLES> 972,073
<ALLOWANCES> 50,000
<INVENTORY> 1,310,151
<CURRENT-ASSETS> 2,819,031
<PP&E> 766,790
<DEPRECIATION> 347,480
<TOTAL-ASSETS> 3,803,216
<CURRENT-LIABILITIES> 1,385,027
<BONDS> 0
0
0
<COMMON> 4,755
<OTHER-SE> 2,413,434
<TOTAL-LIABILITY-AND-EQUITY> 3,803,216
<SALES> 1,641,364
<TOTAL-REVENUES> 1,641,364
<CGS> 995,849
<TOTAL-COSTS> 995,849
<OTHER-EXPENSES> 2,448,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 644,221
<INCOME-PRETAX> (2,447,150)
<INCOME-TAX> 200
<INCOME-CONTINUING> (2,447,150)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,447,150)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> (0.57)
</TABLE>
