<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 July 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
--------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(609) 354-9000
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(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(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 July 31, 1995 is 11,249,748.
Total No. of Pages: 16
Exhibit Index: Page 12
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THE SCORE BOARD, INC.
INDEX
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income 3
For the Three and Six Months Ended
July 31, 1995 and 1994 (Unaudited)
Consolidated Balance Sheets as of 4
July 31, 1995 (Unaudited) and
January 31, 1995
Consolidated Statements of Cash Flow 5
For the Six Months Ended
July 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
</TABLE>
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<PAGE>
THE SCORE BOARD, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- --------------------------------
July 31 ,1995 July 31, 1994 July 31 ,1995 July 31, 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $16,499,000 $24,411,000 $32,061,000 $35,643,000
COST OF GOODS SOLD 8,618,000 18,238,000 17,327,000 27,321,000
--------------- --------------- --------------- ---------------
GROSS PROFIT 7,881,000 6,173,000 14,734,000 8,322,000
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES 6,786,000 7,819,000 12,649,000 13,927,000
NET PROCEEDS FROM OFFICER'S
LIFE INSURANCE -- (1,100,000) -- (1,100,000)
RESTRUCTURING AND PRODUCT
LINE ADJUSTMENTS -- 11,500,000 -- 17,450,000
--------------- --------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS 1,095,000 (12,046,000) 2,085,000 (21,955,000)
COST OF SECURITES LITIGATION
SETTLEMENT 2,175,000 -- 2,175,000 --
NET INTEREST EXPENSE 458,000 621,000 922,000 1,120,000
--------------- --------------- --------------- ---------------
(LOSS) BEFORE INCOME TAXES (1,538,000) (12,667,000) (1,012,000) (23,075,000)
INCOME TAXES (BENEFIT) -- (4,461,000) -- (8,084,000)
--------------- --------------- --------------- ---------------
NET (LOSS) ($1,538,000) ($8,206,000) ($1,012,000) ($14,991,000)
=============== =============== =============== ===============
NET (LOSS) PER
COMMON SHARE- PRIMARY ($0.14) ($0.73) ($0.09) ($1.34)
=============== =============== =============== ===============
AVERAGE NUMBER OF SHARES
OUTSTANDING - PRIMARY 11,249,748 11,249,000 11,249,748 11,228,000
=============== =============== =============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
THE SCORE BOARD, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
July 31, January 31,
-------------- -----------------
1995 1995
-------------- -----------------
(UNAUDITED)
--------------
<S> <C> <C>
CURRENT ASSETS
Cash $335,000 $101,000
Accounts receivable (net of reserve for returns and
doubtful accounts of $2,087,000 at July 31, 1995
and $2,258,000 at January 31, 1995) 13,798,000 13,914,000
Inventories 17,027,000 17,251,000
Prepaid expenses 2,467,000 3,095,000
Prepaid contracts 5,046,000 5,756,000
Prepaid/recoverable income taxes 514,000 8,174,000
-------------- -----------------
TOTAL CURRENT ASSETS 39,187,000 48,291,000
FIXED ASSETS-net 2,295,000 2,992,000
INTANGIBLE AND OTHER ASSETS-net 2,242,000 2,404,000
-------------- -----------------
TOTAL ASSETS $43,724,000 $53,687,000
============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $0 $14,096,000
Accounts payable 8,330,000 11,461,000
Accrued liabilities 6,000,000 5,488,000
-------------- -----------------
TOTAL CURRENT LIABILTIES 14,330,000 31,045,000
LONG-TERM DEBT 18,501,000 10,737,000
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Preferred stock - $.01 par value, authorized
10,000,000 shares; none issued
Common stock - $.01 par value, authorized 30,000,000
shares in 1995 and 1994; issued 11,249,748 at July 31,
1995 and January 31, 1995 112,000 112,000
Additional paid-in capital 17,019,000 17,019,000
Retained earnings (deficit) (6,238,000) (5,226,000)
-------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 10,893,000 11,905,000
-------------- -----------------
TOTAL LIABILTIES AND SHAREHOLDERS'
EQUITY $43,724,000 $53,687,000
============== =================
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
THE SCORE BOARD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------------
July 31, 1995 July 31,1994
--------------- --------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) ($1,012,000) ($14,991,000)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities :
Restructuring and product line adjustments -- 17,450,000
Cash used in restructuring (1,150,000) (1,604,000)
Inventory obsolescence reserve (1,649,000) --
Depreciation 705,000 733,000
Provision for doubtful accounts and reserve for returns 603,000 101,000
Amortization of intangible assets 401,000 477,000
Settlement of lawsuit 2,000,000 --
Deferred taxes -- (4,872,000)
Changes in operating assets and liabilities:
Accounts receivable (488,000) 7,800,000
Inventories 1,873,000 (3,975,000)
Prepaid expenses and contracts 1,338,000 (1,304,000)
Other assets 5,000 (6,000)
Accounts payable (3,131,000) 1,890,000
Accrued liabilities (237,000) 9,000
Income taxes 7,660,000 (4,536,000)
--------------- -------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 6,918,000 (2,828,000)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (net of capitalized
lease obligations of $354,000 in 1994) (31,000) (258,000)
--------------- -------------
NET CASHED (USED) BY INVESTING ACTIVITIES (31,000) (258,000)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from loans and notes payable (6,225,000) 931,000
Proceeds from the exercise of stock options -- 168,000
Payments for other assets (244,000) (202,000)
Payments of capitalized lease obligations (184,000) (190,000)
--------------- -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (6,653,000) 707,000
INCREASE (DECREASE) IN CASH 234,000 (2,379,000)
CASH - Beginning of period 101,000 3,723,000
--------------- -------------
CASH - End of period $335,000 $1,344,000
=============== =============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $1,028,000 $1,135,000
=============== =============
Cash paid for taxes -- $1,320,000
=============== =============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
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 July 31, 1995 and
of the results of operations for the six months ended July 31, 1995 and 1994.
The operating results for the six months ended July 31, 1995 are not necessarily
indicative of a full year.
2. RESTRUCTURING AND PRODUCT LINE ADJUSTMENTS
During the six months ended July 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 $17,450,000, or $ .96 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 July 31, 1995
was $7,871,000 and is included in long-term debt on the accompanying
consolidated balance sheet.
5. INCOME TAXES
There was no income tax benefit recorded in the six months ended July 31, 1995
due to the availability of a net operating loss carry forward
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<PAGE>
of approximately $5,000,000 for which a 100% valuation allowance has been
established.
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 has received preliminary court approval, provides
for the creation of a fund consisting of $3 million in cash (which will be paid
by insurance) and $2 million of the Company's Common Stock. Accordingly, 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 securities litigation. The actual number of shares to be issued will not be
known until all claims have been made and approved, which will likely occur
sometime in November or December, 1995.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS.
--------------------------
RESULTS OF OPERATIONS
---------------------
Quarter Ended July 31, 1995 Compared to Quarter Ended July 31, 1994.
Following is a comparison of sales by major product category and distribution
channels:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
7/31/95 7/31/94
----------- -----------
<S> <C> <C>
Classic(C) Trading Cards $ 7,755,000 $12,206,000
Memorabilia 5,940,000 8,788,000
Other 2,804,000 3,417,000
----------- -----------
$16,499,000 $24,411,000
=========== ===========
Cable Television $ 3,465,000 $ 3,023,000
Retail 5,940,000 12,626,000
Hobby 5,610,000 5,686,000
Other 1,484,000 3,076,000
----------- -----------
$16,499,000 $24,411,000
=========== ===========
</TABLE>
The decrease in net sales was primarily due to lower sales volume of Classic(C)
trading card and memorabilia products. The decrease in net sales of Classic
trading card products is primarily due to decreased sales of basketball draft
pick trading cards, which were shipped in July 1994 versus a projected ship date
of August 1995 for this year's version, and decreased sales of Best minor league
cards, due to the discontinuation of this product line. Such decreases were
partially offset by increased sales of the Company's football trading cards,
which were shipped in July 1995 versus August 1994 for the prior year's version.
The decrease in sales of memorabilia is primarily due to decreased sales of
entertainment products resulting from the discontinuation of several
entertainment categories. 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 new trading card product development
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.
The decrease in selling, general and administrative expenses were
-8-
<PAGE>
largely the result of decreased selling expenses and, to a lesser degree,
decreases in 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 and
appearance fees (which decreased 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 restructuring of the Company. This decrease was
partially offset by increases in insurance (which increased due to higher
premiums relating to workman's compensation and the securities litigation) and
bank fees (which increased due to the restructuring of the Company's credit
facility).
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 has received preliminary court approval, provides
for the creation of a fund consisting of $3,000,000 in cash (which will be paid
by insurance) and $2,000,000 of the Company's Common Stock. See Part II, Item 1,
"Legal Proceedings." Accordingly, 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 incurred legal and other fees of
approximately $175,000 associated with the securities litigation.
Following is a comparison of sales by major product category and distribution
channels.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
7/31/95 7/31/94
----------- -----------
<S> <C> <C>
Classic(C) Trading Cards $16,789,000 $18,039,000
Memorabilia 11,511,000 14,436,000
Other 3,761,000 3,168,000
----------- -----------
$32,061,000 $35,643,000
=========== ===========
Cable Television $ 7,111,000 $ 5,644,000
Retail 8,827,000 19,465,000
Hobby 13,054,000 6,818,000
Other 3,069,000 3,716,000
----------- -----------
$32,061,000 $35,643,000
=========== ===========
</TABLE>
Sales decreased due to lower Classic card sales, mainly due to the timing of
shipment, and lower memorabilia sales due to reduced sales of entertainment
categories which were discontinued. Gross profit margins have increased year-to-
date for the same reasons as noted previously for
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<PAGE>
the second quarter. Selling, general and administrative expenses are lower than
the previous year primarily in payroll and benefits.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Inventories have declined due to management's ongoing asset management
activities. Prepaid expenses were less than the prior year mainly due to
amortization. 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"). Borrowings 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 August 31, 1995, the outstanding
revolver balance was $9,506,000, and unused credit was $658,000.
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<PAGE>
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 June 26, 1995, the Court preliminarily approved 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 (which will be paid by insurance)
and $2,000,000 in freely tradeable and transferrable shares of Common Stock (the
"Settlement Shares"). For purposes of the settlement, the Court has
preliminarily 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. The Settlement Shares are valued at $4.6469 per share. If,
prior to final approval of the settlement, the average for the ten trading days
preceding such approval of the daily average of the high and low sales prices of
the Company's Common Stock (the "Adjusted Average Price") is less than $4.6469,
the number of Settlement Shares will be increased to yield a total value of $2
million, the number of shares to be determined by dividing the Adjusted Average
Price into $2 million. It is anticipated that the Court will grant final
approval of the settlement on October 19, 1995.
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 hearing for the proceeding, which is being
administered under the rules of the American Arbitration Association in Monmouth
County, New Jersey, has been scheduled for September 20, 1995.
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
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<PAGE>
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, tortious
interference with current and prospective contractual relations and abuse of
process.
The Company is involved in various other legal proceedings and claims
incident to the conduct of its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
-----------------------------------------
(a) Exhibits
(27) Financial Data Schedule
(b) The Company has not filed any reports on Form 8-K during the quarter for
which this report is being filed.
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<PAGE>
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: September 11, 1995 By: /s/ Ken Goldin
----------------------------
Ken Goldin, Chairman, Chief
Executive Officer and
President
Date: September 11, 1995 By: /s/ Nathan T. Schelle
----------------------------
Nathan T. Schelle
Sr. Vice President - Finance
Principal Financial and
Accounting Officer
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<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
-------
Number Description
------ -----------
<S> <C>
27 Financial Data Schedule
-- -----------------------
</TABLE>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AS OF, AND
FOR THE SIX MONTH PERIOD ENDED, JULY 31, 1995,AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1995
<CASH> 335
<SECURITIES> 0
<RECEIVABLES> 15,885
<ALLOWANCES> 2,087
<INVENTORY> 17,027
<CURRENT-ASSETS> 39,187
<PP&E> 6,047
<DEPRECIATION> 3,752
<TOTAL-ASSETS> 43,724
<CURRENT-LIABILITIES> 14,330
<BONDS> 18,501
<COMMON> 112
0
0
<OTHER-SE> 10,781
<TOTAL-LIABILITY-AND-EQUITY> 43,724
<SALES> 32,061
<TOTAL-REVENUES> 32,061
<CGS> 17,327
<TOTAL-COSTS> 17,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 603
<INTEREST-EXPENSE> 922
<INCOME-PRETAX> (1,012)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,012)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,012)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
