SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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: June 30, 1999
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[_] 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.
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(Exact name of small business issuer as specified in its charter)
Delaware 95-4478767
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
9255 Doheny Road, Suite 2705 Los Angeles, CA 90069
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(310) 275-5313
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- --------------------------------------------------------------------------------
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 [ ]
5,636,794 shares of Common Stock, par value $.001 per share, were outstanding at
August 13, 1999.
1
<PAGE>
ROLLERBALL INTERNATIONAL INC.
FORM 10-QSB
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Balance Sheets -
June 30, 1999 and December 31, 1998 (Audited) 3
Statements of Operations -
Three Months and Six Months
ended June 30, 1999 and 1998 4
Statements of Cash Flows -
Six Months ended June 30, 1999 and 1998 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 11
Item 5 - Other Information 11
Item 6 - Exhibits and reports on Form 8-K 12
Signatures 12
2
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PART I - FINANCIAL INFORMATION
ROLLERBALL INTERNATIONAL INC.
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 77,358 $ 132,099
Accounts receivable, net of allowance for doubtful
accounts of $50,000 for June 30, 1999
and December 31, 1998, respectively 366,796 212,770
Due from factor 26,584 -
Inventory 1,090,373 1,468,022
Prepaid expenses and other 316,407 168,884
----------- -----------
Total Current Assets 1,877,518 1,981,775
Property and equipment, net 327,695 382,958
Intangible assets, net of accumulated amortization
of $125,525 (1999) and $102,485 (1998) 546,941 557,760
----------- -----------
Total Assets $ 2,752,154 $ 2,922,493
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilites:
Accounts payable $ 685,642 $ 681,478
Accrued expenses 590,046 460,804
Notes payable to stockholders 57,000 57,000
Advances from stockholders 21,072 49,129
Debt 100,000 100,000
----------- -----------
Total Current Liabilities 1,453,760 1,348,411
Commitments
Stockholders' Equity:
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; 5,636,794
issued and outstanding (1999),
4,756,693 (1998) 5,637 4,757
Additional paid in capital 10,729,433 10,034,341
Accumulated deficit (9,436,676) (8,465,016)
------------ ------------
Total Stockholders' Equity 1,298,394 1,574,082
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,752,154 $ 2,922,493
=========== ===========
</TABLE>
See accompanying notes
3
<PAGE>
<TABLE>
<CAPTION>
ROLLERBALL INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
Six months ended June 30, Three months ended June 30,
---------------------------------- -----------------------------------
1999 1998 1999 1998
---------- ----------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $1,150,332 $ 931,015 $ 559,574 $ 875,212
Cost of sales 742,476 623,985 352,921 583,657
--------- ------------ ----------- -----------
Gross profit 407,856 307,030 206,653 291,555
Operating expenses:
Selling and marketing 442,703 668,031 273,125 428,281
General and administrative 908,594 717,690 494,116 445,971
--------- ------------ ----------- -----------
Total operating expenses 1,351,297 1,385,721 767,241 874,252
--------- ------------ ----------- -----------
Loss from operations (943,441) (1,078,691) (560,588) (582,697)
Interest expense 28,019 481,975 12,762 170,190
--------- ------------ ----------- -----------
Loss before provision for income taxes (971,460) (1,560,666) (573,350) (752,887)
Provision for income taxes 200 200 -- --
--------- ------------ ----------- -----------
Net loss $(971,660) $ (1,560,866) $ (573,350) $ (752,887)
========= ============ =========== ===========
Net loss per common share
Basic ($0.20) ($0.39) ($0.11) ($0.16)
========= ============ =========== ===========
Diluted ($0.20) ($0.39) ($0.11) ($0.16)
========= ============ =========== ===========
Weighted average common shares
outstanding
Basic 4,898,360 4,051,189 5,040,026 4,696,285
========= ============ =========== ===========
Diluted 4,898,360 4,051,189 5,040,026 4,696,285
========= ============ =========== ===========
</TABLE>
See accompanying notes
4
<PAGE>
<TABLE>
<CAPTION>
ROLLERBALL INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
Six months ended June 30,
------------ ------------
1999 1998
------------ ------------
<S> <C> <C>
Operating Activities
Net loss $ (971,660) $(1,560,866)
Adjustments to reconcile net loss to net cash used in
operating activities:
Allowance for doubtful accounts -- 50,000
Depreciation and amortization 92,406 88,110
Amortization of debt issuance costs 3,125 313,882
Change in operating assets and liabilities:
Accounts receivable (154,026) (542,076)
Due from factor (26,584) --
Inventory 377,649 (302,887)
Prepaid expenses 36,852 (825,953)
Accounts payable (3,410) 235,178
Accrued expenses 139,857 (351,851)
----------- -----------
Net cash used in operating activities (505,791) (2,896,463)
INVESTING ACTIVITIES
Purchases of property and equipment (14,103) (57,097)
Increase in intangible assets (12,221) (72,150)
----------- -----------
Net cash used in investing activities (26,324) (129,247)
FINANCING ACTIVITIES
Deferred stock offering costs -- 234,594
Net proceeds from issuance of common stock 505,431 4,772,854
Payments on debt -- (1,300,000)
Payments of notes payable -- (180,000)
Payments on loans to stockholders (28,057) (5,500)
Exercise of warrants -- 137,846
----------- -----------
Net cash provided by financing activities 477,374 3,659,794
----------- -----------
Net (decrease) increase in cash (54,741) 634,084
Cash at beginning of period 132,099 344,208
----------- -----------
Cash at end of period $ 77,358 $ 978,292
=========== ===========
</TABLE>
See accompanying notes
5
<PAGE>
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 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.
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, 1998 is derived from audited
financial statements which are included in the Company's Form 10-KSB 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. FINANCING
In February 1999, the Company entered into an Accounts Receivable
financing agreement with a factor whereby it sells its eligible receivables to
the factor and receives an 85% advance rate on those receivables. The Company
pays interest at prime plus 4.25% and additional finance fees at a rate 1.5% per
month on the advanced funds. The Company had gross sales to the factor during
the six months ended June 30, 1999 of $273,128, received $230,606 in advances on
those receivables and incurred $15,938 in financing fees.
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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.
5. SALE OF STOCK
During April and May 1999, the Company received a total of $30,556 in
gross proceeds for the issuance of 30,101 shares of common stock to several of
its current investors as well as new investors in private transactions under
Section 4(2) of the Securities Act of 1933.
In April, May and June 1999, the Company received an aggregate of
$500,000 in gross proceeds for the issuance of 670,000 shares of common stock
pursuant to a private placement with one of it's shareholders. Net proceeds
totaled approximately $464,000 after expenses associated with the private
placement.
7
<PAGE>
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.
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS AND
SIX MONTHS ENDED JUNE 30, 1998
Net sales for the three months ended June 30, 1999 and 1998 were
$559,574 and $875,212, respectively, which is a decrease of $315,638 or
approximately 36%. This decrease is due to shipment difficulties and delays
associated with inventory produced in the Orient. These delays will result in
sales shifting from the second quarter to the third quarter 1999. Net sales for
the six months ended June 30, 1999 and 1998 were $1,150,332 and $931,015,
respectively, which is an increase of $219,317 or approximately 24%. This
increase is primarily attributable to the increased domestic distribution in
retail outlets in addition to internet sales the Company has experienced during
the six months ended June 30, 1999 as compared to the same period ending June
30, 1998.
Gross margin for the three months ended June 30, 1999 was 36.9% which
represents an increase of 3.6% in the gross margin percent as compared to the
three months ended June 30, 1998. Gross margin for the six months ended June 30,
1999 was 35.5% which represents an increase of 2.5% in the gross margin percent
as compared to the six months ended June 30, 1998. The increases relate
primarily to the new line of skates being sold at higher margins in both the
three months and the six months ended June 30, 1999 as opposed to the same
periods ending June 30, 1998. In addition, cost reductions were experienced in
the three and six months ended June 30, 1999 as opposed to the same periods
ending June 30, 1998 due to negotiations with the Company's overseas
manufacturers.
8
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Selling and marketing expenses for the three months ended June 30, 1999
and 1998 were $273,125 and $428,281, respectively, which represents a decrease
of $155,156, or 36.2%. Selling and marketing expenses for the six months ended
June 30, 1999 and 1998 were $442,703 and $668,031, respectively, which
represents a decrease of $225,328, or 33.7%. The decreases relate primarily to
the Company making significant cost reductions. In addition to not participating
in one of the annual sporting goods trade shows, the Company decreased research
and development, brochure, promotional and travel expense during the three and
six months ended June 30, 1999 as compared to the same periods ended June 30,
1998.
General and administrative expenses for the three months ended June 30,
1999 and 1998 were $494,116 and $445,971, respectively, which represents an
increase of $48,145, or 10.8%. General and administrative expenses for the six
months ended June 30, 1999 and 1998 were $908,594 and $717,690, respectively,
which represents an increase of $190,904, or 26.6%. The increases were primarily
due to increases of $211,440 related to salaries and professional fees. The
increase in salaries primarily relates to the addition of full time services
including the position of the Vice President of Design and Development and the
Vice President of Administration. The increase in professional fees primarily
relates to legal fees incurred in the defense of the Company's registered
trademarks. The Company has reached an agreement where no litigation was
necessary.
The Company's interest expense for the three months ended June 30, 1999
and 1998 was $12,762 and $170,190, respectively, which represents a decrease of
$157,428. The Company's interest expense for the six months ended June 30, 1999
and 1998 was $28,019 and $481,975, respectively, which represents a decrease of
$453,956. 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
were fully amortized in 1998.
Net loss for the three months ended June 30, 1999 and 1998 was $573,350
and $752,887, respectively, which represents a decrease of $179,537, or 23.8%.
Net loss for the six months ended June 30, 1999 and 1998 was $971,660 and
$1,560,866, respectively, which represents a decrease of $589,206, or 37.7%. The
decrease in net loss for these periods are primarily attributable to the
increased sales activity experienced in the first quarter 1999 as compared to
the same period ended 1998 coupled with the increased gross profit margin as
well as the decrease in interest expense. The Company continues to expect
increased gross profit margins and decreased interest expense over the next
several quarters as compared to the previous year's quarters.
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
9
<PAGE>
automatically converted into equity and $1,500,000 of notes were paid in full
with the proceeds from the offering.
During April and May 1999, the Company received a total of $30,556 in
gross proceeds for the issuance of 30,101 shares of common stock to several of
its current investors as well as new investors in private transactions under
Section 4(2) of the Securities Act of 1933.
In April, May and June 1999, the Company received an aggregate of
$500,000 in gross proceeds for the issuance of 670,000 shares of common stock
pursuant to a private placement with one of it's shareholders. Net proceeds
totaled approximately $464,000 after expenses associated with the private
placement.
Due to the continued depressed state of the inline skate market, lack
of sales and the inability to obtain inventory, the Company will require
additional capital to continue operations. The Company is currently in
negotiations to raise additional equity capital for the Company. There can be no
assurances that any transaction will be consummated. The Company intends to
locate additional sources of financing in the near term which financings may
include equity and/or debt components. There can be no assurance that the
Company will be successful in these efforts.
Net cash used in operating activities for the six months ended June 30,
1999 and 1998 was $505,791 and $2,896,463, respectively. The decrease was
attributable to a decrease in the net loss for the six months ended June 30,
1999 as compared to the same period in the prior year. In addition, significant
cash was used to purchase inventory and pay down accrued expenses during the six
months ended June 30, 1998. Working capital at June 30, 1999 was $423,760 as
compared to $633,364 at December 31, 1998. The decrease is primarily
attributable to the net loss and the decrease in inventory for the six months
ended June 30, 1999.
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 $14,103 and expenditures
for other assets totaled $12,221 for the six months ended June 30, 1999.
Expenditures for other assets primarily include legal fees paid to develop
various patents and trademarks.
YEAR 2000
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
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compliant as of June 30, 1999. 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
In March 1999, the Company issued 150,000 shares of restricted common
stock to a consulting group in exchange for various financial services including
but not limited to introducing the Company to financial firms and potential
investors. The term of this agreement is fourteen months.
During April and May 1999, the Company received a total of $30,556 in
gross proceeds for the issuance of 30,101 shares of common stock to several of
its current investors as well as new investors in private transactions under
Section 4(2) of the Securities Act of 1933.
In June 1999, the Company received $500,000 in gross proceeds for the
issuance of 670,000 shares of common stock pursuant to a private placement with
one of it's shareholders. Net proceeds totaled approximately $464,000 after
expenses associated with the private placement.
ITEM 5. OTHER INFORMATION
On April 20, 1999, the Company received notice from the Nasdaq SmallCap
Stock Market regarding its non-compliance with the net tangible assets
requirement to maintain its listing. Under Nasdaq rules, to maintain listing on
the Nasdaq Smallcap market the Company must have $2,000,000 of net tangible
assets. The Company does not currently comply with this maintenance requirement.
The Company has requested a hearing in which it will submit a plan which sets
forth a strategy to bring the Company into compliance with the listing
maintenance rules. No hearing date has been determined. There can be no
assurances that the strategy will be consummated. There can be no assurance that
the Nasdaq Smallcap Market will accept the Company's plan and determine not to
delist the Company's common stock. In the event that the Company is unable to
maintain continued quotation on the Nasdaq SmallCap Market, quotation, if any,
of the Common Stock would be in the over-the-counter market in what are commonly
referred to as the "pink sheets" of the National Quotation Bureau, Inc. or on
the National Association of Securities Dealers OTC Electronic Bulletin Board. As
result, an investor may find it more difficult to dispose of or to obtain
accurate quotations as to the price of such securities.
11
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits - Exhibit 27 - Financial Data Schedule
(b). Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter.
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.
August 13, 1999 /s/ Jack Forcelledo
- --------------- -------------------
DATE JACK FORCELLEDO
PRESIDENT & CHIEF EXECUTIVE OFFICER
/s/ Kenneth B. Teasdale
-----------------------
KENNETH B. TEASDALE
CHIEF FINANCIAL OFFICER
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 77,358
<SECURITIES> 0
<RECEIVABLES> 443,380
<ALLOWANCES> 50,000
<INVENTORY> 1,090,373
<CURRENT-ASSETS> 1,877,518
<PP&E> 780,893
<DEPRECIATION> 453,298
<TOTAL-ASSETS> 2,752,154
<CURRENT-LIABILITIES> 1,453,760
<BONDS> 0
0
0
<COMMON> 5,637
<OTHER-SE> 1,292,757
<TOTAL-LIABILITY-AND-EQUITY> 2,752,154
<SALES> 1,150,332
<TOTAL-REVENUES> 1,150,332
<CGS> 742,476
<TOTAL-COSTS> 742,476
<OTHER-EXPENSES> 1,351,297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,019
<INCOME-PRETAX> (971,460)
<INCOME-TAX> 200
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (971,660)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
