<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No 0-16913
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THE SCORE BOARD, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2766077
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1951 Old Cuthbert Road, Cherry Hill, New Jersey 08034
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(Address of principal executive offices)
(Zip Code)
(609) 354-9000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares outstanding on October 31, 1995 is 11,357,900.
Total No. of Pages: 16
Exhibit Index: Page 15
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THE SCORE BOARD, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income 3
For the Three and Nine Months Ended
October 31, 1995 and 1994 (Unaudited)
Consolidated Balance Sheets as of 4
October 31, 1995 (Unaudited) and
January 31, 1995
Consolidated Statements of Cash Flow 5
For the Nine Months Ended
October 31, 1995 and 1994 (Unaudited)
Notes to Consolidated Financial
Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 12
Signature Page 13
Exhibits 14-16
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THE SCORE BOARD , INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $23,947,000 $18,019,000 $56,008,000 $53,662,000
COST OF GOODS SOLD 14,414,000 17,102,000 31,741,000 44,423,000
-------------- --------------- -------------- ---------------
GROSS PROFIT 9,533,000 917,000 24,267,000 9,239,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,256,000 7,699,000 19,905,000 21,626,000
NET PROCEEDS FROM OFFICER'S
LIFE INSURANCE -- -- -- (1,100,000)
RESTRUCTURING AND PRODUCT
LINE ADJUSTMENTS -- 4,500,000 -- 21,950,000
-------------- --------------- -------------- ---------------
INCOME (LOSS) FROM OPERATIONS 2,277,000 (11,282,000) 4,362,000 (33,237,000)
COST OF SECURITIES LITIGATION
SETTLEMENT -- -- 2,175,000 --
NET INTEREST EXPENSE 509,000 635,000 1,431,000 1,755,000
-------------- --------------- -------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 1,768,000 (11,917,000) 756,000 (34,992,000)
INCOME TAXES (BENEFIT) -- 1,913,000 -- (6,171,000)
-------------- --------------- -------------- ---------------
NET INCOME (LOSS) $1,768,000 ($13,830,000) $756,000 ($28,821,000)
============== =============== ============== ===============
NET INCOME (LOSS) PER
COMMON SHARE - PRIMARY $0.16 ($1.23) $0.07 ($2.53)
============== =============== ============== ===============
AVERAGE NUMBER OF SHARES
OUTSTANDING - PRIMARY 11,342,070 11,275,350 11,280,522 11,390,967
============== =============== ============== ===============
</TABLE>
See notes to consolidated financial statements
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THE SCORE BOARD, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
October 31, January 31,
1995 1995
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(UNAUDITED)
-----------
CURRENT ASSETS
Cash $866,000 $ 101,000
Accounts receivable (net of reserve for
returns and doubtful accounts of $2,210,000
and $2,258,000 at October 31, 1995 and
January 31,1995,respectively) 17,087,000 13,914,000
Inventories 18,990,000 17,251,000
Prepaid expenses 2,159,000 3,095,000
Prepaid contracts 5,859,000 5,756,000
Prepaid/recoverable income taxes 514,000 8,174,000
---------- -----------
TOTAL CURRENT ASSETS 45,475,000 48,291,000
FIXED ASSETS - net 1,999,000 2,992,000
INTANGIBLE AND OTHER ASSETS - net 2,116,000 2,404,000
---------- -----------
TOTAL ASSETS $ 49,590,000 $53,687,000
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $ -- $14,096,000
Accounts payable 10,366,000 11,461,000
Accrued liabilities 5,745,000 5,488,000
---------------- -----------
TOTAL CURRENT LIABILITIES 16,111,000 31,045,000
LONG-TERM DEBT 20,447,000 10,737,000
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value, authorized
10,000,000 shares; none issued -- --
Common stock - $.01 par value, authorized
30,000,000 shares; issued 11,357,900
shares at October 31, 1995 and
11,249,748 at January 31, 1995 114,000 112,000
Additional paid-in capital 17,388,000 17,019,000
Retained earnings (deficit) (4,470,000) (5,226,000)
-------------- ----------
TOTAL STOCKHOLDERS' EQUITY 13,032,000 11,905,000
-------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $49,590,000 $53,687,000
============== ============
See notes to consolidated financial statements
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THE SCORE BOARD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-----------------------------
1995 1994
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CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $756,000 ($28,821,000)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Restructuring and product line adjustments -- 21,950,000
Cash used in restructuring (1,305,000) (3,054,000)
Prepaid expenses and contracts reserve -- 1,565,000
Inventory obsolescence reserve (2,414,000) 306,000
Depreciation 1,030,000 1,067,000
Provision for doubtful accounts and reserve for 1,092,000 151,000
Amortization of intangible assets 618,000 720,000
Settlement of lawsuit 2,000,000 --
Deferred taxes -- 1,168,000
Changes in operating assets and liabilities:
Accounts receivable (4,265,000) 11,599,000
Inventories 675,000 549,000
Prepaid expenses and contracts 833,000 (1,491,000)
Other assets 44,000 25,000
Accounts payable (1,095,000) (943,000)
Accrued liabilities (415,000) (455,000)
Income taxes 7,660,000 (7,774,000)
------------- ---------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 5,214,000 (3,438,000)
------------- ---------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of fixed assets (net of capitialized
lease obligations of $354,000 in 1994) (60,000) (270,000)
------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES (60,000) (270,000)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from loans and notes payable (4,386,000) 1,765,000
Proceeds from the exercise of stock options 371,000 168,000
Payments for other intangible assets (374,000) (202,000)
------------- ---------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIE (4,389,000) 1,731,000
------------- ---------------
INCREASE (DECREASE) IN CASH 765,000 (1,977,000)
CASH - Beginning of period 101,000 3,723,000
------------- ---------------
CASH - End of period $866,000 $1,746,000
============= ===============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $1,779,943 $1,746,000
============= ===============
Cash paid for taxes -- $508,000
============= ===============
</TABLE>
See notes to Consolidated Financial Statements
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THE SCORE BOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The financial information furnished herein includes, in the opinion of
management, all adjustments (only consisting of normal recurring accruals)
necessary for a fair presentation of financial position as of October 31, 1995
and of the results of operations and cash flow for the nine months ended October
31, 1995 and 1994. The operating results for the nine months ended October 31,
1995 are not necessarily indicative of a full year.
2. RESTRUCTURING AND PRODUCT LINE ADJUSTMENTS
During the nine months ended October 31, 1994, the Company's Board of Directors
adopted plans to relocate one of its subsidiaries, Classic Games, Inc., to New
Jersey, discontinue several of the Company's product lines and reduce its
inventory levels through alternative distribution programs. The Company
recorded pre-tax charges of $21,950,000, or $1.58 per share after tax on a
primary earnings per share basis. Included in these charges were estimated
losses on inventory, contractual commitments, lease abandonment, relocation and
severance costs.
3. NET INCOME (LOSS) PER SHARE
Primary income per share is based on the weighted average number of Common
Shares and Common Stock equivalents outstanding during the respective periods.
Fully-diluted income per share is computed assuming the convertible debentures
were converted as of the beginning of the period, and the exercise of stock
options as of the beginning of the period. Common Stock equivalents are not
considered in the calculation of primary net loss per share since they would be
antidilutive. In 1995 and 1994, fully-diluted and primary net income (loss) per
share are the same.
4. BANK INDEBTEDNESS
On July 31, 1995, the Company's loan agreement with Mellon Bank, N.A. was
replaced by a three year revolving credit facility with Congress Financial
Corporation. Borrowings under the new facility are available up to $12,000,000,
subject to availability, as defined, based on inventory and accounts receivable.
Interest is charged at prime plus 2%. The outstanding balance at October 31,
1995 was $9,874,000 and is included in long-term debt on the accompanying
consolidated balance sheet.
5. INCOME TAXES
There was no income tax provision recorded in the nine months ended October 31,
1995 due to the availability of a net operating loss carry forward of
approximately $5,000,000 for which a 100% valuation allowance has been
established.
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6. LITIGATION
In August 1994, eight separate proposed class action lawsuits were filed against
the Company and individual defendants alleging, inter alia, securities fraud
----------
under the federal securities laws. On November 17, 1994, the plaintiffs in
these lawsuits filed a consolidated amended class action complaint.
On June 27, 1995, the Company reached an agreement for the full settlement and
dismissal of the shareholder litigation, subject to final approval from the
court. The settlement, which received final court approval on November 6,
1995, provides for the creation of a fund consisting of $3 million in cash (paid
by insurance) and $2 million in freely tradeable and transferrable shares of
Common Stock (430,394 shares). Accordingly, in the quarter ended July 31, 1995,
the Company recorded a one-time pretax, noncash charge for $2.0 million to
reflect the issuance of Common stock in connection with the settlement. In
addition, the Company incurred legal and other fees of approximately $175,000
associated with the shareholder litigation.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS.
-------------------------
RESULTS OF OPERATIONS
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QUARTER ENDED OCTOBER 31, 1995 COMPARED TO QUARTER ENDED OCTOBER 31, 1994.
- --------------------------------------------------------------------------
Following is a comparison of sales by major product category and distribution
channels:
THREE MONTHS ENDED
-------------------------
10/31/95 10/31/94
----------- -----------
Classic(R) Trading Cards $13,297,000 $10,165,000
Memorabilia 8,579,000 6,603,000
Other 2,071,000 1,251,000
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$23,947,000 $18,019,000
=========== ===========
Cable Television $ 4,743,000 $ 3,361,000
Retail 11,319,000 10,030,000
Hobby 6,934,000 4,390,000
Other 951,000 238,000
----------- -----------
$23,947,000 $18,019,000
=========== ===========
The increase in net sales was primarily due to higher sales volume of Classic(R)
trading card, phone card and memorabilia products. The increase in Classic
trading card sales is mainly due to new product releases and the timing of
certain product shipments. The increase in sales of memorabilia is primarily
due to the Company's first shipment of products to a large retailer under its
in-store merchandising program, as well as the sale of products commemorating a
one time high profile sporting event. Memorabilia sales were further increased
due to strong sales of unautographed consumer sports oriented collectibles. The
changes in sales by distribution outlet primarily occurred due to sales of new
Classic trading card products, which were heavily marketed to hobby outlets.
The increase in gross profit margins, which has been a major focus of
management, is a result of the Company's development of new trading card
products and marketing strategies which have enabled the Company to increase its
selling prices. In addition, prior year's results reflect the disposition of
slow moving items at low margins as well as additional reserves for product
returns and inventories.
The Company experienced decreases in both selling and general and administrative
expenses. Decreases occurred in commissions (due to a higher percentage of
hobby sales which are not subject to commissions) and in most other selling
expenses, such as trade show expenses, appearance fees and advertising costs
(which decreased
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due to management's cost containment efforts). These decreases were partially
offset by higher royalties resulting from a higher percentage of the Company's
sales being subject to royalties. General and administrative expenses primarily
decreased in payroll and other administrative expenses as the result of the
Company's restructuring. This decrease was partially offset by increases in
insurance (which increased due to higher premiums relating to workman's
compensation and directors and officers liability policies).
NINE MONTHS ENDED OCTOBER 31, 1995 COMPARED TO NINE MONTHS ENDED OCTOBER 31,
- ----------------------------------------------------------------------------
1994.
- -----
Following is a comparison of sales by major product category and distribution
channels:
NINE MONTHS ENDED
------------------------
10/31/95 10/31/94
----------- -----------
Classic(R) Trading Cards $29,768,000 $28,179,000
Memorabilia 19,945,000 21,022,000
Other 6,295,000 4,461,000
----------- -----------
$56,008,000 $53,662,000
=========== ===========
Cable Television $11,854,000 $ 9,005,000
Retail 20,189,000 29,495,000
Hobby 19,977,000 11,208,000
Other 3,988,000 3,954,000
----------- -----------
$56,008,000 $53,662,000
=========== ===========
The increase in net sales was primarily due to higher Classic(R) trading card
and phone card sales and sales of other products. The increase in Classic
trading card sales was mainly due to new product releases and the timing of
certain product shipments. The increases in other net sales is due to
specialty product sales. These increases were partially offset by a decrease in
memorabilia products sales which declined due to the discontinuation of several
entertainment related product categories. The changes in sales by distribution
outlet, the increase in gross profit margins and the decrease in selling,
general and administrative expenses were due to the same reasons as noted for
the third quarter.
On June 27, 1995, the Company reached an agreement for the full settlement and
dismissal of its shareholder litigation, subject to final approval from the
court. The settlement, which received final court approval on November 6, 1995,
provides for the creation of a fund consisting of $3,000,000 in cash (paid by
insurance) and $2,000,000 of the Company's Common Stock. See Part II, Item 1,
"Legal Proceedings." Accordingly, in the quarter ended July 31, 1995, the
Company recorded a one time $2,000,000 pretax, noncash charge to reflect the
issuance of Common Stock in connection with the settlement. In addition, the
Company
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<PAGE>
incurred legal and other fees of approximately $175,000 associated with the
shareholder litigation.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Accounts receivables have increased due to higher levels of sales in the quarter
ended October, 31, 1995 compared to the fourth quarter of the previous year
ended, January 31, 1995. Inventories increased due to the seasonal increases in
non-autographed and some autographed goods to meet anticipated fourth quarter
shipments, as well as increased work in progress inventory related to
forthcoming trading card issues. Prepaid and recoverable income taxes decreased
as the Company received a refund of $7,600,000 of Federal income taxes from the
carry back of its fiscal 1995 tax loss. The proceeds were used to pay off the
balance of $5,500,000 on the Company's then existing amortizing term loan with
Mellon Bank, N.A. ("Mellon"); the remainder was applied to reduce the Company's
revolving credit facility with Mellon. Due to the availability of funds, the
Company was able to reduce its trade accounts payable and accrued liabilities.
On July 31, 1995, the Company's loan agreement with Mellon was replaced by a
three year revolving credit facility from Congress Financial Corporation
("Congress"). Borrowing under the new facility can be up to $12,000,000,
subject to availability, as defined, based on inventory and accounts receivable.
Interest is charged at prime plus 2%. At November 30, 1995, the outstanding
revolver balance was $9,854,000, and unused credit was $2,146,000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ---------------------------
In August 1994, eight separate purported class action lawsuits were filed
against the Company and certain individual defendants in the United States
District Court for the District of New Jersey (the "Court") alleging, inter
-----
alia, securities fraud under the federal securities laws. On November 17, 1994,
- ----
the plaintiffs in these lawsuits filed a consolidated amended class action
complaint. The Company filed its answer to the consolidated complaint on
January 12, 1995, denying all charges contained in the consolidated complaint.
In addition, a separate complaint containing the same allegations was filed
against the Estate of Paul Goldin, the Company's former Chairman of the Board
and Chief Executive Officer. All complaints were consolidated.
On November 6, 1995, the Court granted final approval for the settlement of
the litigation in accordance with the terms contained in a Stipulation of
Settlement on file with the Court. Under the Stipulation, a settlement fund has
been established consisting of $3,000,000 in cash (paid by insurance) and
$2,000,000 in freely tradeable and transferrable shares of Common Stock,
(430,394 shares). For purposes of the settlement, the Court certified a class
consisting of all persons who purchased the Company's Common Stock during the
period commencing October 29, 1993 and ending September 2, 1994.
On October 4, 1994, Willie Mays initiated an arbitration proceeding with
the Company, claiming that the Company failed to perform certain contractual
obligations and seeking specific performance of the current contract. The
Company has asserted various counterclaims based on Mr. Mays' failure to
perform his contractual obligations. The three day hearing, which was
administered under the rules of the American Arbitration Association in Monmouth
County, New Jersey, was concluded on November 18, 1995. The parties expect a
decision by the arbitrator within sixty days.
On February 14, 1995, Upper Deck Authenticated, Ltd. ("UDA") filed suit
against the Company and three unaffiliated entities in the United States
District Court for the Southern District of California alleging, inter alia,
----------
that the Company had engaged in unfair competition and violated UDA's right to
use the indicia of certain athletes on sports memorabilia and collectibles. The
Company has responded to UDA's suit by denying all wrongdoing and filing its own
claims against UDA, Upper Deck Company and Richard McWilliam, charging them with
unfair competition, defamation and tortious interference with current and
prospective contractual relations. Discovery in this matter is ongoing.
The Company is involved in various other legal proceedings and claims
incident to the conduct of its business.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- -----------------------------------------
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K during the quarter for which this report is being
filed: On August 15, 1995, the Company filed a report on Form 8-K under Item 5.
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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.
THE SCORE BOARD, INC.
Date: December 15, 1995 By: /s/ Ken Goldin
----------------------------
Ken Goldin, Chairman, Chief
Executive Officer and
President
Date: December 15, 1995 By: /s/ Nathan T. Schelle
----------------------------
Nathan T. Schelle
Sr. Vice President - Finance
Principal Financial and
Accounting Officer
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<PAGE>
THE SCORE BOARD, INC.
EXHIBITS
TO
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
OCTOBER 31, 1995
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit
- -------
Number Description
- ------ -----------
27 Financial Data Schedule
- -- -----------------------
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AS OF, AND FOR
THE NINE MONTH PERIOD ENDED, OCTOBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 866
<SECURITIES> 0
<RECEIVABLES> 19287
<ALLOWANCES> 2210
<INVENTORY> 18990
<CURRENT-ASSETS> 45475
<PP&E> 6077
<DEPRECIATION> 4078
<TOTAL-ASSETS> 49590
<CURRENT-LIABILITIES> 16111
<BONDS> 20447
<COMMON> 114
0
0
<OTHER-SE> 12918
<TOTAL-LIABILITY-AND-EQUITY> 49590
<SALES> 56008
<TOTAL-REVENUES> 56008
<CGS> 31741
<TOTAL-COSTS> 31741
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1092
<INTEREST-EXPENSE> 1431
<INCOME-PRETAX> 756
<INCOME-TAX> 0
<INCOME-CONTINUING> 756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 756
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
