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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND 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.
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(Exact name of registrant as specified in its charter)
New Jersey 22-2766077
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(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
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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 May 31, 1995 is 11,249,748.
Total No. of Pages: 11
Exhibit Index: Page 10
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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 Months Ended
April 30, 1995 and 1994 (Unaudited)
Consolidated Balance Sheets as of 4
April 30, 1995 (Unaudited) and
January 31, 1995
Consolidated Statements of Cash Flow 5
For the Three Months Ended
April 30, 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 8-9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
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THE SCORE BOARD, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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April 30, 1995 April 30, 1994
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<S> <C> <C>
NET SALES $15,562,000 $11,232,000
COST OF GOODS SOLD 8,709,000 9,083,000
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GROSS PROFIT 6,853,000 2,149,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,863,000 6,108,000
RESTRUCTURING AND PRODUCT
LINE ADJUSTMENTS -- 5,950,000
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INCOME (LOSS) FROM OPERATIONS 990,000 (9,909,000)
NET INTEREST EXPENSE 464,000 499,000
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INCOME (LOSS) BEFORE INCOME TAXES 526,000 (10,408,000)
INCOME TAXES (BENEFIT) -- (3,623,000)
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NET INCOME (LOSS) $526,000 ($6,785,000)
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NET INCOME (LOSS) PER
COMMON SHARE - PRIMARY $0.05 ($0.58)
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AVERAGE NUMBER OF SHARES
OUTSTANDING - PRIMARY 11,249,748 11,604,155
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</TABLE>
See Notes to Consolidated Financial Statements
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THE SCORE BOARD, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
April 30, January 31,
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1995 1995
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(UNAUDITED)
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<S> <C> <C>
CURRENT ASSETS
Cash $148,000 $101,000
Accounts receivable (net of reserve for
returns and doubtful accounts of
$1,520,000 at April 30, 1995
and $2,258,000 at January 31, 1995) 12,347,000 13,914,000
Inventories 14,800,000 17,251,000
Prepaid expenses 2,254,000 3,095,000
Prepaid contracts 5,489,000 5,756,000
Prepaid/recoverable income taxes 508,000 8,174,000
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TOTAL CURRENT ASSETS 35,546,000 48,291,000
FIXED ASSETS-net 2,616,000 2,992,000
INTANGIBLE AND OTHER ASSETS-net 2,194,000 2,404,000
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TOTAL ASSETS $40,356,000 $53,687,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $7,709,000 $14,096,000
Accounts payable 5,921,000 11,461,000
Accrued liabilities 3,613,000 5,488,000
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TOTAL CURRENT LIABILTIES 17,243,000 31,045,000
LONG-TERM OBLIGATIONS 10,682,000 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 in 1995
and 1994; issued 11,249,748 at April 30,
1995 and January 31, 1995 112,000 112,000
Additional paid-in capital 17,019,000 17,019,000
Retained earnings (deficit) (4,700,000) (5,226,000)
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TOTAL STOCKHOLDERS' EQUITY 12,431,000 11,905,000
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TOTAL LIABILTIES AND
STOCKHOLDERS' EQUITY $40,356,000 $53,687,000
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</TABLE>
See Notes to Consolidated Financial Statements
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THE SCORE BOARD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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April 30, April 30,
1995 1994
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income (loss) $526,000 ($6,785,000)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Restructuring and product line adjustments -- 5,950,000
Cash used in restructuring (927,000) (501,000)
Inventory obsolescence reserve (84,000) --
Depreciation 369,000 358,000
Provision for doubtful accounts and reserve for
retuns 12,000 5,000
Amortization of intangible assets 211,000 261,000
Deferred taxes -- (726,000)
Changes in operating assets and liabilities:
Accounts receivable 1,555,000 8,229,000
Inventories 2,535,000 (3,107,000)
Prepaid expenses and contracts 1,108,000 (626,000)
Other assets -- (202,000)
Accounts payable (5,540,000) (2,589,000)
Accrued liabilities (920,000) (1,774,000)
Income taxes 7,666,000 (4,225,000)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 6,511,000 (5,732,000)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (net of capitalized
lease obligations of $354,000 in 1994) (22,000) (157,000)
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NET CASHED (USED) BY INVESTING ACTIVITIES (22,000) (157,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans and notes payable (6,387,000) 2,350,000
Proceeds from the exercise of stock options -- 168,000
Payments of capitalized lease obligations (55,000) (89,000)
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NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (6,442,000) 2,429,000
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INCREASE (DECREASE) IN CASH 47,000 (3,460,000)
CASH - Beginning of period 101,000 3,723,000
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CASH - End of period $148,000 $263,000
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SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $745,000 $764,000
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Cash paid for taxes -- $1,320,000
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</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 representation of the results of operations for the three
months ended April 30, 1995 and 1994. The operating results for the three months
ended April 30, 1995 are not necessarily indicative of a full year.
2. RESTRUCTURING
In April 1994, the Company's Board of Directors adopted a plan to relocate one
of its subsidiaries, Classic Games, Inc., to New Jersey and restructure the
Company's organization, in an effort to improve the coordination of product
development and cross-marketing opportunities. The Company recorded a pre-tax
charge of $5,950,000, or $.33 per share after tax on a primary earnings per
share basis. Included in this charge were estimated provisions for lease
abandonment, moving, set-up and personnel relocation, incentive 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
The Company's loan agreement with Mellon Bank, N.A., which was to expire on
April 30, 1995, was amended and extended until November 30, 1995. The credit
line available under the new amendment is $9,750,000 as of May 1, 1995 and
declines gradually over the remaining life to $8,750,000 through October 31,
1995 and $6,000,000 on November 1, 1995. The extension of the credit was agreed
upon to allow the Company sufficient time to find alternative financing. The
available borrowings based on collateral at April 30, 1995 were $10,000,000, of
which $7,709,000 was outstanding.
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5. INCOME TAXES
There was no income tax expense recorded in the three months ended April 30,
1995 due to the availability of a net operating loss carry forward of
approximately $5,000,000 for which a 100% valuation allowance was established at
January 31, 1995.
In February, 1995 the Company received a Federal income tax refund totalling
$7,600,000 for carry back of the tax loss for the year ended January 31, 1995.
The proceeds were used to pay off the $5,500,000 amortizing term loan and
$2,100,000 was used to reduce the outstanding revolving credit balance.
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. The Company filed
its answer to the consolidated complaint on January 12, 1995, denying all
charges contained in the consolidated complaint. Discovery is ongoing. In
addition, a separate complaint has been filed against the Estate of Paul Goldin
containing the same allegations as the consolidated complaint. All complaints
have been consolidated.
7. SUBSEQUENT EVENT
On May 12, 1995, the Company received a commitment from a financial institution
for a three year revolving credit facility, subject to meeting certain
conditions. Borrowings under the new facility will be available up to
$12,000,000, subject to availability, as defined, based on inventory and
accounts receivable. Interest will be charged at prime plus 2%. The
documentation process should be completed by the end of June 1995, at which time
any amounts outstanding under the current loan agreement will be repaid. While
management is confident that this refinancing will occur, there is no assurance
that the agreement will ultimately be consummated.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Quarter Ended April 30, 1995 Compared to Quarter Ended April 30, 1994.
Following is a comparison of sales by major product category and distribution
channels:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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4/30/95 4/30/94
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<S> <C> <C>
Classic(C) Trading Cards $ 9,034,000 $ 5,833,000
Memorabilia 5,571,000 5,648,000
Other 957,000 (249,000)
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$15,562,000 $11,232,000
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Cable Television $ 3,646,000 $ 2,621,000
Retail 2,887,000 6,839,000
Hobby 7,444,000 1,132,000
Other 1,585,000 640,000
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$15,562,000 $11,232,000
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</TABLE>
The increase in net sales was primarily due to higher sales volume and overall
price increases of Classic(C) trading card products. Such increases were
achieved through improved marketing strategies which resulted in the successful
introduction of three new products. In addition, Classic trading card sales
increased due to less product returns as a result of the adoption of a new sales
policy. The changes in sales by distribution outlet primarily occurred due to
sales of the new Classic trading card products, which were marketed to hobby
outlets.
The increase in gross profit margins, which has been a major focus of
management, was primarily the result of increased sales of higher margin Classic
trading card products and, to a lesser extent, the reduction in product returns.
The decrease in selling, general and administrative expenses was largely the
result of decreased selling 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 shows and appearance fees (which
decreased due to management's cost containment efforts). These decreases were
partially offset by higher royalties resulting from the higher sales volume.
Despite decreases in payroll and other administrative expenses resulting from
the restructuring of the Company, general and administrative expenses remained
relatively constant. This was due to
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increases in depreciation (associated with the increased level of fixed assets),
insurance (which increased due to higher premiums relating to workman's
compensation) and bank fees (which increased due to the restructuring of the
Company's credit facility).
Liquidity and Capital Resources
The Company's ongoing asset management activities have continued to result in
significant changes in the Company's financial position. Accounts receivable and
inventories declined due to management's concentrated effort to generate cash.
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. (the
"Bank"); the remainder was applied to reduce the Company's revolving credit
facility with the Bank. Due to the availability of funds, the Company was able
to reduce its trade accounts payable and accrued liabilities.
The Company's revolving credit agreement with the Bank was amended in April
1995. The credit agreement, as amended, will expire November 30, 1995. The
credit line available under the amended facility is $9,750,000 as of May 1,
1995, and declines gradually over the remaining life of the facility to
$8,750,000 on October 31, 1995 and $6,000,000 on November 1, 1995. At June 12,
1995, the outstanding revolver balance was $7,021,000 and unused available
credit was $608,000. The extension of the credit facility was agreed upon to
allow the Company sufficient time to find alternative financing.
On May 12, 1995, the Company received a commitment from a financial institution
for a three year revolving credit facility, subject to meeting certain
conditions. Borrowings under the new facility will be available up to
$12,000,000 subject to availability, as defined, based on inventory and accounts
receivable. Interest will be charged at prime plus 2%. The documentation process
for the new facility should be completed by the end of June 1995, at which time
any amounts outstanding under the current loan agreement with the Bank will be
repaid. While management is confident that this refinancing will occur, there is
no assurance that the new facility will ultimately be consummated. In addition
to this new facility, the Company will continue to explore other available
sources of capital as well, including equity.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In August 1994, eight separate proposed class action lawsuits were filed against
the Company and individual defendants in the United States District Court for
the District of New Jersey alleging, inter alia, securities fraud under the
Federal Securities Laws. On November 17, 1994, 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. Discovery is ongoing. In addition, a
separate complaint has been filed against the Estate of Paul Goldin, the
Company's former Chairman of the Board and Chief Executive Officer, containing
the same allegations as the consolidated complaint. All complaints have been
consolidated.
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. No hearing date has been selected for the
proceeding, which is being administered under the rules of the American
Arbitration Association in Monmouth County, New Jersey.
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
has 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 an
attempt to monopolize the sports memorabilia industry, unfair competition,
defamation, tortious interference with current and prospective contractual
relations and abuse of process.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) The Company has not filed any reports on Form 8-K during the first quarter
for which this report is being filed.
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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: June 14, 1995 By: /s/ Ken Goldin
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Ken Goldin, Chairman, Chief
Executive Officer and
President
Date: June 14, 1995 By: /s/ Nathan T. Schelle
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Nathan T. Schelle,
Sr. Vice President - Finance
Principal Financial and
Accounting Officer
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