Heelys, Inc. reported first-quarter sales declined to $6.7 million compared to net sales of $9.2 million a year ago.

Gross profit was $3.2 million, or 47.9%, compared to gross profit of $3.4 million, or 36.7%, for the first quarter of 2009. Selling, general and administrative expenses, excluding litigation settlements and related costs, were $4.2 million compared to $5.1 million in the first quarter of last year. Litigation settlements and related costs incurred during the first quarter of 2009 were related to the class action lawsuit (filed in August 2007), the shareholders' derivative lawsuit (filed in October 2007) and the individual lawsuit (filed in May 2008). These lawsuits were settled during the third and fourth quarters of 2009. The Company reported a net loss of $1.2 million, or ($0.04) per fully diluted share, versus a net loss of $1.3 million, or ($0.05) per fully diluted share in the first quarter of 2009.

Balance Sheet

As of March 31, 2010, the company had combined cash and investments totaling $67.9 million compared with cash and investments of $66.5 million as of December 31, 2009. During the three months ended March 31, 2010, the Company received a $2.9 million income tax refund as a result of the carryback of the federal net operating loss for 2008.

Tom Hansen, chief executive officer, commented, “While the first quarter is always tough for us, the sluggish economy and record bad weather in the Northeast and Midwest made January and February especially difficult. Even so, we've continued to reduce general and administrative expenses and have improved our gross margin percentage. We plan to introduce two new products during the summer months with appropriate marketing spending through the end of the year. Throughout this process we will focus heavily on improving domestic sales and working closely with our retail partners to create programs that will help drive Heelys sales in their stores.”