<PAGE>
Form 10-Q
UNITED STATES 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 April 30, 1996
------------------------------
OR
[ ] 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 0-16913
------------------------------------------------------
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
----------------------------------------------------------------
(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 April 30, 1996 is 11,839,148
Total No. of Pages: 11
Exhibit Index: Page 10
<PAGE>
THE SCORE BOARD, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
April 30, 1996 (Unaudited) and
January 31, 1996 3
Consolidated Statements of Operations
For the Three Months Ended
April 30, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flow
For the Three Months Ended April 30,
1996 and 1995 (Unaudited) 5
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
-2-
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 30, January 31,
---------------- ----------------
1996 1996
---------------- ----------------
(UNAUDITED)
----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $120,000 $142,000
Accounts receivable, net of reserve for returns and
doubtful accounts of $1,700,000 and $1,925,000 10,965,000 14,895,000
Inventories 14,906,000 16,449,000
Prepaid expenses and other 2,113,000 2,784,000
Prepaid contracts 2,329,000 1,674,000
Income taxes receivable 514,000 514,000
---------------- ----------------
Total Current Assets 30,947,000 36,458,000
FIXED ASSETS, net 1,446,000 1,616,000
INTANGIBLE AND OTHER ASSETS, net 2,102,000 2,044,000
---------------- ----------------
$34,495,000 $40,118,000
=============== ===============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $7,467,000 $9,122,000
Accrued liabilities 4,075,000 4,401,000
---------------- ----------------
Total Current Liabilities 11,542,000 13,523,000
---------------- ----------------
LONG-TERM DEBT 18,769,000 20,402,000
---------------- ----------------
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 11,839,148 at April 30,
1996 and 11,822,642 at January 31, 1996 119,000 118,000
Additional paid-in capital 19,557,000 19,505,000
Accumulated deficit (15,492,000) (13,430,000)
---------------- ----------------
Total Stockholders' Equity 4,184,000 6,193,000
---------------- ----------------
$34,495,000 $40,118,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
April 30, 1996 April 30, 1995
---------------- ----------------
<S> <C> <C>
NET SALES $14,167,000 $15,562,000
COST OF GOODS SOLD 10,612,000 8,709,000
---------------- ----------------
GROSS PROFIT 3,555,000 6,853,000
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES 5,098,000 5,863,000
---------------- ----------------
INCOME (LOSS) FROM OPERATIONS (1,543,000) 990,000
INTEREST EXPENSE 519,000 464,000
---------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES (2,062,000) 526,000
INCOME TAXES (BENEFIT) -- --
---------------- ----------------
NET INCOME (LOSS) ($2,062,000) $526,000
=============== ===============
NET INCOME (LOSS) PER SHARE ($0.17) $0.05
=============== ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING 11,826,000 11,250,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
April 30, 1996 April 30, 1995
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (loss) ($2,062,000) $526,000
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities :
Cash used in restructuring 259,000 (927,000)
Depreciation 382,000 369,000
Provision for doubtful accounts and reserve for returns (350,000) 12,000
Amortization of intangible assets 248,000 211,000
Changes in operating assets and liabilities:
Accounts receivable 4,280,000 1,555,000
Inventories 1,543,000 2,451,000
Prepaid expenses and contracts 16,000 1,108,000
Other assets (306,000) --
Accounts payable (1,655,000) (5,540,000)
Accrued liabilities (555,000) (920,000)
Income tax receivable -- 7,666,000
---------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,800,000 6,511,000
INVESTING ACTIVITIES:
Purchases of fixed assets (212,000) (22,000)
---------------- ---------------
NET CASH (USED) IN INVESTING ACTIVITIES (212,000) (22,000)
FINANCING ACTIVITIES :
Net borrowings (repayments) of bank indebtedness (1,616,000) (6,387,000)
Proceeds from the exercise of stock options 53,000 --
Payments of capitalized lease obligations (47,000) (55,000)
---------------- ---------------
NET CASH PROVIDED (USED IN) FINANCING ACTIVITIES (1,610,000) (6,442,000)
---------------- ---------------
NET INCREASE (DECREASE) IN CASH (22,000) 47,000
CASH, Beginning of period 142,000 101,000
---------------- ---------------
CASH, End of period $120,000 $148,000
=============== ==============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION :
Cash paid for interest $605,000 $745,000
=============== ==============
Cash received for taxes -- $7,666,000
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
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 April 30, 1996 and
the results of operations and cash flow for the three months ended April 30,
1996 and 1995.
2. NET INCOME (LOSS) PER SHARE
Primary income per share is based on the weighted average number of Common Stock
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.
Common Stock equivalents are not considered in the calculation of net loss per
share since they would be antidilutive.
3. BANK INDEBTEDNESS
In July 1995, the Company obtained a three-year revolving credit facility with
Congress Financial Corporation. Borrowings under the facility are available up
to $12,000,000, subject to availability, based on eligible accounts receivable
and inventories, as defined. Interest is charged at prime plus 2%. The
facility is secured by essentially all of the Company's assets and subject to
financial and non-financial covenants. The available credit, based on
collateral at April 30, 1996, was $9,258,000, of which $8,269,000 was
outstanding and included in long-term debt.
4. LITIGATION
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 their President, charging them with unfair
competition, defamation and tortious interference with current and prospective
contractual relations. Discovery in this matter is ongoing and the Company
provided a $500,000 reserve at January 31, 1996, for estimated legal fees
related to this suit, as management plans to vigorously defend these actions.
The Company does not expect the outcome of these actions to have a material
adverse effect on its financial position or results of operation.
-6-
<PAGE>
5. SUBSEQUENT EVENT
On May 28,1996, one of the holders of the Company's convertible subordinated
debentures exchanged $3,500,000 and $3,000,000 in principal amount of the
subordinated debentures, due September 1, 2002 and February 1, 2003,
respectively, for 912,000 shares of the Company's Common Stock. The early
retirement of the debentures will result in a one-time extraordinary pre-tax
gain of approximately $800,000, or $0.06 per share.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -------------------------------------------------------------------
AND RESULTS OF OPERATIONS.
--------------------------
RESULTS OF OPERATIONS
- ---------------------
Quarter Ended April 30,1996 Compared to Quarter Ended April 30,1995.
- --------------------------------------------------------------------
Following is a comparison of sales by major product category:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
April 30, 1996 April 30, 1995
-------------- --------------
<S> <C> <C>
Classic Trading Cards $ 2,767,000 $ 5,501,000
Memorabilia 7,747,000 5,571,000
Phone Cards 2,728,000 3,533,000
Other 925,000 957,000
----------- -----------
$14,167,000 $15,562,000
=========== ===========
</TABLE>
The decrease in net sales was primarily due to the reduced sales of Classic
trading card products and, to a lesser extent, reductions in sales of phone card
products. The decrease in trading card sales reflects the continuing softness
in the trading card market. The decrease in phone card sales primarily relates
to reduced selling prices in response to market conditions and the Company's
decision to move the release date of a phone card issue which shipped in the
prior year's first quarter to the second quarter of the current year. These
decreases were partially offset by an increase in sales of memorabilia products.
The increase in memorabilia sales was primarily due to sales to a large
retailer, which did not occur in the prior fiscal quarter, and increased sales
to cable television outlets.
The decrease in gross margins was primarily due to decreased sales of trading
card products, which traditionally sell at higher margins. In addition, gross
margins were negatively impacted by the implementation of a new method of
amortizing player contracts($250,000)and the accelerated disposition of
inventory.
The Company experienced a decrease in selling expenses ($1,962,000 in 1996 as
compared to $2,728,000 in 1995), while general and administrative expenses
remained relatively constant ($3,136,000 in 1996 as compared to $3,135,000 in
1995). The decrease in selling expenses was primarily due to decreases in
variable selling expenses resulting from the reduction in sales. This decrease
was partially offset by an increase in licensing fees associated with the
implementation of a new method of accounting for license agreements ($200,000).
General and administrative expenses, such as payroll and general operating
expenses, decreased as a result of the Company's restructuring; however, these
decreases were offset by the settlement of a lawsuit($350,000).
LIQUIDITY AND CAPITAL RESOURCES
Accounts receivable decreased due to decreased levels of sales during the
quarter ended April 30, 1996 as compared to the fourth quarter of fiscal 1996.
Inventories declined due to management's concentrated effort to generate cash.
Accounts payable decreased due to decreased purchases during
-8-
<PAGE>
the first quarter of fiscal 1997 as compared to the fourth quarter of fiscal
1996. The Company generated $1,800,000 in cash flow from operations primarily
due to the above changes.
On July 31, 1995, the Company obtained a three year revolving credit facility
from Congress Financial Corporation. Borrowings under the facility are
available up to $12,000,000 subject to availability, as defined, based on
eligible inventory and accounts receivable, as defined. Interest is charged at
prime rate plus 2%. The facility is secured by essentially all of the Company's
assets. At June 12, 1996, the outstanding balance was $9,378,000, which was the
maximum credit available.
Based on the Company's present plans and strategic initiatives put in place over
the last two years, the Company believes that it will have sufficient liquidity
and capital resources, including borrowings under its credit facility, to fund
future operations.
At April 30, 1996, the Company has Federal net operating loss carry-forwards of
approximately $15,500,000 for which no benefit has been reflected in the
consolidated financial statements. These carry-forwards, in addition to other
fully reserved deferred tax assets, may offset future taxable income.
-9-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- --------------------------
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. Discovery in this matter is ongoing.
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 first
quarter for which this report is being filed.
-10-
<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: June 14,1996 By: /s/ Ken Goldin
----------------------------
Ken Goldin, Chairman and
President
Date: June 14,1996 By:/s/ Michael D. Hoppman
----------------------------
Michael D. Hoppman
Sr. Vice President, Finance
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AS OF, AND FOR THE THREE MONTHS
ENDED APRIL 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 120,000
<SECURITIES> 0
<RECEIVABLES> 12,665,000
<ALLOWANCES> 1,700,000
<INVENTORY> 14,906,000
<CURRENT-ASSETS> 30,947,000
<PP&E> 5,215,000
<DEPRECIATION> 3,769,000
<TOTAL-ASSETS> 34,495,000
<CURRENT-LIABILITIES> 11,542,000
<BONDS> 18,769,000
0
0
<COMMON> 119,000
<OTHER-SE> 4,065,000
<TOTAL-LIABILITY-AND-EQUITY> 34,495,000
<SALES> 14,167,000
<TOTAL-REVENUES> 14,167,000
<CGS> 10,612,000
<TOTAL-COSTS> 10,612,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 190,000
<INTEREST-EXPENSE> 519,000
<INCOME-PRETAX> (2,062,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,062,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,062,000)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
