<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K/A-1
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1996
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 Identification No.)
incorporation or organization)
1951 Old Cuthbert Road, Cherry Hill, New Jersey 08034
(Address of principal executive offices)
Registrant's telephone number, including area code: (609) 354-9000
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 _____
------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value, as of April 25, 1996, of voting stock of the
registrant held by non-affiliates was approximately $66,621,583.
The number of outstanding shares of registrant's Common Stock, $.01 par value,
on April 25, 1996 was 11,843,837.
Documents Incorporated By Reference: None
<PAGE>
THE SCORE BOARD, INC.
---------------------
INDEX
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Item Page
---- ----
PART I 1. Business 3
2. Properties 12
3. Legal Proceedings 12
4. Submission of Matters to Vote of
Security Holders 13
PART II 5. Market for Registrant's Common Equity
and Related Stockholder Matters 14
6. Selected Financial Data 14
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
8. Financial Statements and Supplementary
Data 20
9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 21
PART III 10. Directors and Executive Officers of the
Registrant 22
11. Executive Compensation 24
12. Security Ownership of Certain Beneficial
Owners and Management 29
13. Certain Relationships and Related
Transactions 30
PART IV 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 31
2
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PART I
------
Item 1. Business
- ----------------
Introduction
- ------------
The Score Board, Inc. (the "Company" or "Registrant") designs,
manufactures, markets and distributes sports and entertainment related products.
Its primary activities are the marketing and sale of specialty sports trading
cards, sports and entertainment memorabilia and prepaid telephone calling cards.
The Company's products are sold primarily through national and regional cable
television shopping networks, national and regional retailers, wholesalers and
distributors, hobby stores, and premium and promotional programs.
The Company's trading card activities focus on the sale of Company
designed specialty sports trading cards. The Company's memorabilia operations
consist of designing, manufacturing and selling autographed and non-autographed
sports and entertainment memorabilia. The sports and entertainment memorabilia
product lines include autographed baseballs, baseball bats, footballs,
basketballs, hockey sticks, uniform jerseys and trading cards, as well as
autographed and non-autographed photo plaques, limited edition lithographs, gold
record plaques, shirts, jewelry, commemorative coins and ceramic items. Each
item of memorabilia features the name, likeness or similar indicia of an athlete
or entertainment celebrity, or certain characters and trademarks associated with
a television show or motion picture.
The Company also designs and sells prepaid telephone calling card
products, which products are sold in discrete sets or packaged with the
Company's trading card products. In addition, the Company licenses third
parties to manufacture and sell trading cards and other non-autographed
products.
The Company produces its various products based upon personal service
contracts with celebrities and other license agreements. Under the personal
service contracts, the celebrities agree to autograph memorabilia, for which
they are generally paid on a per signature basis with a specific guaranteed
minimum. They may also grant to the Company a license to manufacture and sell,
and to sublicense third parties to manufacture and sell, various non-autographed
products such as prepaid telephone calling cards, watches, greeting cards, party
accessories and ornaments. They may also be paid additional fees for
performing other services, including personal appearances, on behalf of the
Company.
The Company was incorporated in the State of New Jersey on November
25, 1986. References to the Company include The Score Board, Inc. and its
wholly-owned subsidiaries, Americana Memorabilia, Inc., Classic Games, Inc.,
Classic Marketing, Inc., SB Acquisition Corp. and Score Board Holding
Corporation. References to Classic refer to Classic Marketing, Inc. The
Company's fiscal year ends on January 31st.
3
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In July 1995, the Company merged five of its wholly-owned subsidiaries,
California Gold, Inc., Catch A Star Collectibles, Inc., Pro Legends, Inc., Score
Board Retail Corp. and Score Board Sub, Inc., with and into the Company. The
merger was effected in accordance with a Plan of Merger adopted on March 30,
1994. None of the subsidiaries merged into the Company had active operations.
Trading Cards
- -------------
The Company produces various trading card products based upon its
personal service contracts with athletes and other license agreements. Pursuant
to its contracts with athletes, the Company produces draft pick trading card
sets featuring the top draft picks in the Major League Baseball, National
Basketball Association, National Football League and National Hockey League
drafts. The draft pick line includes football and basketball trading card sets
and, until recently, baseball and hockey sets. These sets have been marketed in
different configurations, including complete sets, foil packs of twelve cards
and jumbo packs of sixteen cards, and are distributed through the Company's
various channels of distribution. The Company also produces a multi-sport
trading card product featuring race car drivers and draft pick players from each
of the four major sports, and produces various high-end trading card products
featuring baseball, basketball, football and hockey players which are marketed
through the Company's various channels of distribution. Certain of these high-
end trading card products include foil-packed premium trading cards with a
prepaid telephone calling card in each pack. Other high-end products include
foil-packed trading cards with randomly inserted autographed trading cards. The
Company also produces various auto racing trading card products which feature
race car drivers, members of their pit crews, race cars and car owners.
In addition, the Company produces the Classic Pro-Line collection of
trading card products under its license agreements with the National Football
League Properties, Inc. ("NFLP") and the National Football League Players
Association ("NFLPA").
The Company has discontinued production of minor league baseball
trading cards and its hockey draft pick and baseball draft pick sets.
The Company's trading card products are manufactured, printed and packaged
for the Company by unrelated third parties.
Memorabilia
- -----------
The Company's memorabilia line consists of sports memorabilia and
entertainment memorabilia. Sports memorabilia products are based upon personal
service contracts entered into with certain well-known athletes, as well as non-
exclusive licenses obtained from entities such as Major League Baseball
Properties, Inc. ("MLBP"), the Major League Baseball Players Association
("MLBPA"), NBA Properties, Inc. ("NBAP") and NFLP. The products currently
include items such as autographed baseballs, baseball bats, uniform jerseys,
helmets, basketballs, footballs and trading cards. The sports memorabilia line
also includes autographed
4
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and non-autographed photo plaques, limited edition lithographs, shirts,
commemorative coins and ceramic items.
As of January 31, 1996, the Company had personal service contracts with
approximately forty sports celebrities, including Cal Ripken, Jr.,
Shaquille O'Neal, Hank Aaron, Nolan Ryan, Hakeem Olajuwon, Barry Bonds, Ken
Griffey, Jr., Frank Thomas, Greg Maddux, Alonzo Mourning, Troy Aikman, Emmitt
Smith, III, Steve Young and Dale Earnhardt. The contracts typically have a term
of one to two years, and the Company has generally not experienced difficulty in
renewing these contracts. Many of these contracts prohibit the celebrity from
autographing certain items for sale through mass merchandising channels, such as
television shopping networks and retail catalogs, unless the sales are arranged
by the Company.
The Company has license agreements with MLBP and the MLBPA, pursuant
to which the Company may utilize the names and logos of MLBP (and its member
teams) and the MLBPA in connection with the manufacture and distribution of
autographed and non-autographed memorabilia. During the past fiscal year,
products sold by the Company under one or both of these licenses included
autographed baseballs, baseball bats, photographs and collector plaques. Both
the MLBP and the MLBPA licenses will expire on December 31, 1996.
The Company has a license agreement with NBAP, pursuant to which the
Company may use the names, logos, emblems and uniforms of the NBAP and its
member teams in connection with a variety of autographed and non-autographed
memorabilia. The NBAP has also granted the Company the right, on a group basis,
to use the names, likenesses and other attributes of current NBA players on such
memorabilia. The license agreement will expire July 31, 1996.
In addition, the Company has acquired a license from NFLP to utilize
the names, logos and other identifying symbols of NFLP and its member teams on a
variety of autographed and non-autographed memorabilia. The license will expire
March 31, 1997.
The Company's entertainment memorabilia is based upon exclusive and
non-exclusive licenses obtained, and personal service contracts entered into, by
the Company involving certain well-known celebrities and certain characters and
trademarks associated with motion pictures and television shows. The products
currently include limited edition lithographs, gold record plaques, mugs,
ceramic items, jewelry, commemorative coins, stamp plaques, photo plaques,
framed and matted photos, posters and similar products.
As of January 31, 1996, the Company had personal service contracts
with approximately fifteen entertainment celebrities. The contracts typically
have a term of one to three years, and the Company generally has not had
difficulty in renewing these contracts.
The Company has a non-exclusive license from Paramount Pictures, Inc.
to market certain Star Trek memorabilia through direct mail/catalog outlets,
---------
retail outlets and certain television shopping networks. The Company has also
obtained an exclusive license from Lucasfilm, Ltd. to market newly developed
autographed and non-autographed memorabilia based on characters
5
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and trademarks associated with the Star Wars series of motion pictures, as well
---------
as a non-exclusive license to market currently existing products relating
thereto.
The Company's memorabilia is marketed primarily through national and
regional cable shopping television networks, national and regional retailers,
hobby stores and premium and promotional programs.
Sublicensing
- ------------
The Company's sublicensing business is based upon its personal service
contracts with certain well-known athletes. Under these contracts, the Company
acquires the right to manufacture and sell, and to sublicense third parties to
manufacture and sell, various non-autographed products. The Company receives
royalties from the sale of products by the third parties with which it enters
into sublicensing agreements.
The Company has sublicensed to Hallmark Cards, Inc. the right to
manufacture and sell an exclusive line of personal communication and celebration
specialty products (e.g., greeting cards and party accessories) and holiday
ornaments featuring various professional athletes. The Company has also
sublicensed to Sprint Communications Company, L.P. the right to manufacture and
sell, both nationally and internationally, prepaid telephone calling cards
featuring the Company's portfolio of athletes from all major sports. The
Company has also sublicensed numerous other companies to produce items such as
trading cards, gold trading cards, collector plates and watches.
Recent Developments
- -------------------
In February 1995, the Company terminated operations at its plaque and
framing division and entered into an agreement to lease the premises and assets
of such division to Record Time Design, Inc. ("RTDI"). RTDI is owned and
operated by former employees of the Company. Under the terms of the lease
agreement, RTDI will supply the Company with plaque and framing services at a
fixed cost, and will pay the Company a monthly rental fee for the leased
premises and assets. The Company also granted RTDI an option to purchase the
leased assets at a mutually agreed upon price.
In July 1995, the Company secured a $12,000,000 asset based revolving
line of credit from Congress Financial Corporation, a subsidiary of CoreStates
Financial Corp. This line of credit replaced the Company's previous credit line
with Mellon Bank, N.A. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
On November 6, 1995, the Company settled its securities litigation in
accordance with the terms of a Stipulation of Settlement on file with the United
States District Court for the District of New Jersey. See Item 3. "Legal
Proceedings."
6
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On February 2, 1996, the Company announced a twenty percent staffing
reduction (approximately 40 employees), the elimination of certain marginally
profitable products and small inventory lots, and a new minimum order policy. It
also announced a $1,960,000 pre-tax restructuring charge relating to these
matters.
On March 27, 1996, the Company announced a non-recurring special
charge of $3,715,000 in connection with the write-down of certain assets
relating to license agreements and its assessment of estimated legal costs to be
incurred in connection with ongoing litigation.
Marketing and Distribution
- --------------------------
The Company markets its products primarily through in-house sales
employees and independent sales representatives. Channels of distribution
include cable television shopping networks such as QVC and Canadian Home
Shopping Network, national and regional retailers (including toy stores,
convenience stores, mass market retailers, warehouse clubs and distributors of
periodical publications), wholesalers and distributors, hobby stores, and
premium and promotional programs.
The Company has utilized various sales representatives and
distributors who are generally paid commissions of varying rates based on net
sales with respect to certain specified accounts. Commissions are customarily
paid pursuant to oral arrangements, although the Company has several written
agreements with sales representatives. The Company primarily ships its
memorabilia products from its warehouse in Cherry Hill, New Jersey, and has its
trading card products shipped to customers by unrelated manufacturers.
License Agreements, Personal Service Contracts and Trademarks
- -------------------------------------------------------------
In general, the production or distribution of products depicting the
image of any celebrity, athlete, team, league, organization logo or trademark
requires a license from such celebrity, athlete, team, league, organization or
owner of the trademark. The Company believes that it has obtained, and is
currently in material compliance with, all licenses necessary to produce and
market its existing products and its products under development. The Company is
constantly seeking to sign athletes to personal services contracts and to
acquire licenses from other licensing entities in connection with the production
of its product lines.
The Company acquires the products it utilizes to produce its sports
and entertainment memorabilia pursuant to license agreements it has obtained or
from manufacturers the Company believes to be duly licensed. The Company obtains
the autographs for its memorabilia products pursuant to personal service
contracts. The Company's business is largely dependent upon its ability to
maintain existing licenses and personal service contracts and to obtain
additional licenses and personal service contracts necessary to offer new
products.
To enable the Company to produce its draft pick trading card sets, the
Company enters into contracts with draft pick athletes. In specific instances,
the Company has obtained the exclusive right to depict certain of the draft pick
athletes until they become members of a major league
7
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team. Because the players are shown in their high school or college uniforms,
rather than in the uniforms of their future professional teams, and are not yet
members of the players' associations, the Company believes that no licenses are
needed from either the leagues or the players' associations to produce its draft
pick trading card sets. The Company has, however, obtained a license from the
NFLP to use certain identifying marks of the NFLP on the Company's "Classic
Football Draft Pick Set."
The Company has also acquired licenses from the NFLP, NBAP, MLBP and
MLBPA in connection with the manufacture and distribution of football,
basketball and baseball memorabilia. The Company has several other exclusive and
non-exclusive licenses, which grant the Company the right to produce and
distribute trading cards and sports and entertainment-related memorabilia. See
Item 1. "Business - Memorabilia."
The Company considers its trademarks to be of material importance to its
business. The principal trademarks, including Score Board(R) and Classic(R),
have been registered in the United States and Canada.
Employees
- ---------
As of January 31, 1996, the Company employed 187 full-time persons and 3
part-time persons. No employees of the Company are subject to collective
bargaining agreements. The Company considers its relations with its employees to
be satisfactory.
Risk Factors
- ------------
In addition to the other information contained in this Report, the
following risk factors should be considered carefully in evaluating the Company
and its business. This Report contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following risk factors and
elsewhere in this Report.
Dependence Upon License Agreements
----------------------------------
In general, the production or distribution of products depicting the image
of any celebrity, athlete, team, league, organization, logo or trademark
requires a personal service contract or license from such celebrity, athlete,
team, league, organization or owner of the trademark. The Company's business
is highly dependent upon its ability to obtain and maintain existing licenses
and personal service contracts and to obtain additional licenses and personal
service contracts necessary to offer new products. Although the Company
believes it will be able to renew its licenses and personal service contracts
upon their expiration, there can be no assurance that such renewals can be
obtained on terms acceptable to the Company. The inability of the Company to
renew existing licenses and personal services contracts and/or to acquire
additional licenses and personal service contracts with sports and entertainment
celebrities could have a material adverse impact on the Company's sales and
earnings.
8
<PAGE>
Competition
-----------
The Company believes that no single entity competes against the Company
in all of its product offerings. In each of its product lines, however, the
Company has significant existing and potential competition.
With respect to the manufacture and sale of draft pick trading cards,
the Company believes that it is the dominant source of these cards. The
competitive factors in this market are principally based upon quality, ability
to make prompt delivery and ability to obtain premier players on an exclusive
basis. With respect to the manufacture and sale of other trading cards, the
Company competes directly with other manufacturers, some of whom have far
greater experience and finances devoted to these products. The Company
encounters competition principally based upon product pricing, creativity,
quality and ability to make delivery.
With respect to memorabilia, the Company's sports products compete with
several other sports memorabilia companies, including a company which is an
affiliate of a major trading card manufacturer, as well as dealers involved in
sports trading cards. The Company believes that its sports memorabilia
competitors generally sell their products primarily through television shopping
networks, retail stores, card shows and catalogs, and that the dealers generally
sell their products only through hobby magazines and sports card shows. The
Company's entertainment memorabilia product line competes with certain licensors
who have developed their own entertainment memorabilia product lines which are
sold in their own stores and in catalogs, as well as with dealers, fan clubs,
entertainment memorabilia conventions and concert hall concessions. The Company
faces competition for the sale of sports and entertainment memorabilia based
upon reputation for authenticity of product, product quality and pricing,
athlete/celebrity selection and ability to deliver product in volume. The
Company's practice of providing certificates of authenticity for autographed
memorabilia has enhanced its distribution of these products. The Company also
competes with other sports and entertainment memorabilia companies for the
engagement of sports and entertainment celebrities under personal services
contracts.
Reliance on Television Shopping Networks
----------------------------------------
For the Company's fiscal year ended January 31, 1996, sales to national
and regional cable television networks accounted for approximately 22% of the
Company's net sales. Sales to one of these television shopping networks, QVC
Network, Inc. ("QVC"), accounted for approximately 17% of the Company's net
sales for fiscal year 1996. The Company has no written agreement with QVC, and
cannot give any assurance that it will attain its current level of sales to QVC.
The loss of QVC as a customer, or cable television as a sales outlet for the
Company's products, could have a material adverse impact on the Company.
9
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Factors Affecting Sales and Earnings
------------------------------------
The market for sports trading cards and sports and entertainment
memorabilia is affected by many factors, including seasonality, consumer
interest and general economic conditions. Furthermore, with respect to trading
cards, there has been a significant increase in the number and type of such
cards printed and sold over the past several years, which has made it more
difficult to predict consumer interest with respect to particular cards.
Recently, the market for sports trading cards has experienced a contraction,
which has resulted in diminished sales of trading cards by the Company and
certain of its competitors.
As part of its marketing efforts, the Company has sports and
entertainment celebrities under contract to sign autographs and make
appearances. If the Company were not able to respond to changes in consumer
demand and tastes quickly enough, or if the celebrities under contract with the
Company were to become ill or injured, or to fall into public disfavor, the
Company's sales and earnings could be materially adversely affected. The
Company's sales and earnings could also be materially adversely affected if the
Company were unable to retain the services of the celebrities or if an
overabundance of the celebrities' autographs were to become available for sale.
Source of Materials
-------------------
The Company obtains the standard items to be autographed, such as
baseballs, footballs, basketballs and uniform jerseys, and components for its
memorabilia products from licensed dealers and unrelated third party
manufacturers. The sources for many of these items are limited to several or,
in certain cases, one manufacturer or supplier. Although the Company does not
have formal written agreements with any supplier, the Company generally has not
experienced difficulty in obtaining these items. No assurance can be given,
however, that the Company will not experience any significant difficulty in
obtaining these items in the future.
Dependence on Key Personnel
---------------------------
The Company's future success depends upon its ability to attract and
retain its key managerial personnel. The loss of services of certain of the
Company's executive officers or the inability of the Company to attract
additional management personnel could have a material adverse effect upon the
Company's business, financial condition and results of operations. Certain of
its key executive officers, including Kenneth Goldin, the President and Chief
Executive Officer, and Michael A. Hoppman, the Chief Financial Officer, have
employment agreements with the Company. Mr. Goldin's employment agreement
terminates on December 31, 1996 and Mr. Hoppman's employment agreement
terminates on April 30, 1996.
10
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Potential for Significant Fluctuations in Quarterly Operating Results
---------------------------------------------------------------------
The Company has experienced, and may in the future experience, significant
quarter to quarter fluctuations in its results of operations. Such
fluctuations may result in volatility in the price of the Common Stock.
Quarterly results of operations may fluctuate as a result of a variety of
factors, including demand for the Company's products, the timing of the
introduction of new trading card products or other products by the Company or
its competitors, the market acceptance of new products, competitive conditions
in the industry and general economic conditions. As a result, the Company's
revenues are difficult to forecast, and the Company believes that period to
period comparisons of results of operations are not necessarily meaningful and
should not be relied upon as an indication of future results of operations. Due
to the foregoing factors, it is possible that in future quarters the Company's
operating results will be below the expectations of public market analysts and
investors. Such an event could have a material adverse effect on the price of
the Common Stock.
Management of Changing Business
-------------------------------
The Company has experienced significant changes, including the
restructuring of its continuing business and discontinuance of certain products
and product lines. Such changes have placed and may continue to place a
significant strain on the Company's management and operations. In order to
manage such changes in the future, the Company must continue to implement and
improve its operational, financial and management systems, and hire, train and
manage its employees. If the Company is unable to implement such systems and
manage such changes effectively, the Company's business, financial condition and
results of operations could be materially and adversely affected.
Potential Volatility of Stock Price
-----------------------------------
The market price of the Company's Common Stock has been, and may in the
future be, highly volatile. Factors such as announcements with respect to new
products or licenses by the Company or its competitors, fluctuations in the
Company's operating results and general market and economic conditions could
cause the market price of the Common Stock to fluctuate substantially. These or
other factors may adversely affect the market price of the Common Stock. See
Item 5. "Market for the Registrant's Common Equity and Stockholder Matters."
Distribution
------------
The Company's channels of distribution include cable television shopping
networks, national and regional retailers, wholesalers and distributors, hobby
stores, and premium and promotional programs. The loss of one or more of these
channels of distribution could have a material adverse impact on the Company.
11
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The Company has limited written agreements with its customers and
distributors. In light of this, no assurance can be given that the Company will
not experience a diminution or cessation of sales to any of its customers or
distributors.
Item 2. Properties
- ------------------
The Company leases office and warehouse space at the locations set forth
in the following table:
<TABLE>
<CAPTION>
Approx.
Square Lease Type of
Location Footage Expiration Space
- -------- ------- ---------- -------
<S> <C> <C> <C>
Cherry Hill, N.J. 40,000 12/96 Office and warehouse
Cherry Hill, N.J. 16,000 09/97 Office and warehouse
Cherry Hill, N.J. 13,050 10/97 Office and assembly
Cherry Hill, N.J. 8,925 12/96 Office and assembly
Cherry Hill, N.J. 45,000 10/96 Warehouse
Austell, Georgia 37,340 03/99 Office and warehouse
Austell, Georgia 50,636 03/99 Warehouse
</TABLE>
All of the Company's properties are suitable for the intended activities.
All operations of Classic Games, Inc. were relocated from Austell, Georgia to
New Jersey during 1994. The Company has sublet the 50,636 square foot portion of
space in Austell, Georgia for the remainder of the lease term, and is seeking to
sublet the remaining 37,340 square feet. The Company has also sublet two Cherry
Hill spaces (13,050 square feet and 8,925 square feet) for the remainder of the
lease term.
Item 3. 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 of
Settlement, a settlement fund has been established consisting of $3,000,000 in
cash (paid by insurance) and $2,000,000 in freely tradable and transferable
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.
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On October 4, 1994, Willie Mays initiated an arbitration proceeding
with the Company under the rules of the American Arbitration Association in
Monmouth County, New Jersey, claiming that the Company failed to perform certain
contractual obligations and seeking specific performance of the current
contract. The Company asserted various counterclaims based on Mr. Mays' failure
to perform his contractual obligations. On February 13, 1996, the arbitrator
issued an award affirming that Mr. Mays' contract would remain in full force and
effect.
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.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Company's 1995 Annual Meeting of Shareholders was held on
September 18, 1995 for the purpose of electing five members of the Board of
Directors for a one-year term. The Board of Directors nominated Kenneth Goldin,
Allan R. Lyons, Fred A. Shabel, Gerald B. Shreiber and Richard C. Yancey for
election as directors. The results of the votes taken at the Annual Meeting
were as follows:
<TABLE>
<CAPTION>
Number of Votes
Directors For Withheld
--------- --- --------
<S> <C> <C>
Kenneth Goldin 8,655,930 102,410
Allan R. Lyons 8,657,004 101,336
Fred A. Shabel 8,656,984 101,356
Gerald B. Shreiber 8,656,984 101,356
Richard C. Yancey 8,656,984 101,356
</TABLE>
13
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PART II
-------
Item 5. Market for the Registrant's Common Equity and Stockholder
- -----------------------------------------------------------------
Matters
-------
The Company's shares of Common Stock are traded on the NASDAQ-NMS
under the symbol "BSBL." The following table sets forth the range of high and
low sale prices for each of the periods indicated for the Company's Common
Stock.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal Year 1995
- -----------------------
First Fiscal Quarter.......... $16.000 $8.500
Second Fiscal Quarter......... $ 9.750 $5.625
Third Fiscal Quarter.......... $ 9.000 $3.625
Fourth Fiscal Quarter......... $ 5.250 $2.250
Fiscal Year 1996
- -----------------------
First Fiscal Quarter.......... $ 6.250 $3.500
Second Fiscal Quarter......... $ 6.625 $3.500
Third Fiscal Quarter.......... $ 6.750 $4.500
Fourth Fiscal Quarter......... $ 6.250 $4.125
</TABLE>
On April 25, 1996, the last sale price for the shares of Common Stock as
reported by NASDAQ was $5.625.
There were approximately 1,478 record-holders of the Company's Common Stock
as of April 25, 1996.
Dividend Policy
- ---------------
The Company has never paid cash dividends and does not anticipate paying
cash dividends in the foreseeable future. In addition, the Company's current
credit facility with Congress Financial Corporation prohibits the payment of
dividends. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Item 6. Selected Financial Data
- -------------------------------
This information should be read in conjunction with the consolidated
financial statements and the related notes thereto appearing elsewhere herein.
14
<PAGE>
Consolidated Statement of Operations Data (thousands of dollars, except per
- ---------------------------------------------------------------------------
share data):
- ------------
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------
1996 1995 1994 1993 1992
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales....................... $74,953 $72,799 $108,595 $75,362 $58,623
Cost of Goods Sold.............. 45,211 57,885 59,193 41,503 34,047
Gross Profit.................... 29,742 14,914 49,402 33,859 24,576
Selling, General and
Administrative
Expenses..................... 28,126 30,082 32,380 20,525 14,892
Realignment, restructuring
and product line costs.......... 5,675 22,700 ** -- -- --
Securities
Litigation Settlement.......... 2,175 -- -- -- --
Income (loss) from
Operations.................... (6,234) (37,868) 17,022 13,334 9,684
Interest Expense, Net........... (1,970) (2,388) (1,346) (788) (331)
Net Income (loss)............... (8,204) (33,816) 10,514 8,051 6,030
Net Income (loss) per share..... (0.71) (3.01) 0.95 0.76 0.62
Weighted Average Shares
Outstanding.................. 11,558,000 11,243,258 11,094,219 10,624,562 9,668,212
Fully-Diluted Net Income
per share....................... * * 0.92 0.75 0.61
Weighted Number of Shares
Outstanding.................. * * 12,180,096 10,994,346 9,961,192
</TABLE>
- --------------------------------
* Earnings per share information on a fully diluted basis would reflect a
smaller loss per share.
** Net of insurance proceeds of $1,100,000 on death of former Chairman, CEO and
President.
Consolidated Balance Sheet Data (thousands of dollars):
- ---------------------------------------------------------
<TABLE>
<CAPTION>
As of January 31,
-----------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Working Capital................. $22,935 $17,246 $48,923 $33,780 $16,074
Total Assets.................... $40,118 $53,687 $86,750 $62,603 $28,418
Bank Indebtedness............... $ -- $14,096 $16,030 $ 4,000 $1,400
Long-Term
Obligations................ $20,402 $10,737 $10,980 $11,250 $458
Total Liabilities............... $33,925 $41,782 $41,197 $33,979 $10,556
Stockholders' Equity............ $6,193 $11,905 $45,553 $28,624 $17,862
</TABLE>
The Company has not paid any cash dividends on its Common Stock during the
periods presented.
15
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
Fiscal Years Ended January 31, 1996 and 1995
- --------------------------------------------
Fiscal 1996 was a year of transition, following a major restructuring in
fiscal 1995. Excluding realignment, restructuring and product line adjustment
costs and the securities litigation settlement, the Company reported sales of
$74,953,000 in fiscal 1996, compared to $72,799,000 in fiscal 1995, and a pre-
tax loss of $354,000 in fiscal 1996, compared to $17,556,000 in fiscal 1995.
Following is a comparison of sales by major product category and
distribution channels:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
----------- -----------
<S> <C> <C>
Classic(R) Draft Pick Cards $18,966,000 $22,618,000
NFL ProLine Trading Cards 13,503,000 7,731,000
Other Trading Cards 9,565,000 8,493,000
Memorabilia 26,077,000 29,944,000
Other 6,842,000 4,013,000
----------- -----------
$74,953,000 $72,799,000
=========== ===========
Cable Television $16,235,000 $13,465,000
Retail 26,956,000 30,375,000
Hobby 25,611,000 21,748,000
Other 6,151,000 7,211,000
----------- -----------
$74,953,000 $72,799,000
=========== ===========
</TABLE>
The increase in net sales was primarily due to higher trading card and
prepaid telephone calling card sales and sales of other products. The increase
in trading card sales was mainly due to new product releases and the timing of
certain product shipments. The increases in other net sales was due to
specialty product sales. These increases were partially offset by a decrease in
memorabilia product sales, which declined due to the discontinuation of several
entertainment related product categories.
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.
16
<PAGE>
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 (all of which decreased due to management's conscious efforts
to reduce expenditures in these areas). These decreases were partially offset
by higher royalties resulting from a higher percentage of the Company's sales
being subject to licenses. General and administrative expenses decreased
primarily in payroll and other administrative expenses as the result of the
Company's restructuring and staffing reductions. This decrease was partially
offset by increases in insurance premiums (which increased due to higher
premiums relating to the Company's workman's compensation and directors and
officers liability policies).
On June 27, 1995, the Company reached an agreement for the full settlement
and dismissal of its shareholder litigation, and on November 6, 1995, the
settlement received final court approval. The settlement required the Company
to pay $3,000,000 in cash (paid by insurance) and $2,000,000 in the Company's
Common Stock (430,394 shares). See Item 3 - "Legal Proceedings." Accordingly,
in the quarter ended July 31, 1995, the Company recorded a one-time, $2,000,000
pre-tax, noncash charge of $2,000,000 to reflect the fair value of Common Stock
on the settlement date. In addition, the Company incurred legal and other fees
of approximately $175,000 associated with the shareholder litigation.
In fiscal 1996, the Company recorded pre-tax charges of $5,675,000 for the
costs associated with a strategic realignment program designed to reduce costs,
improve operating efficiencies and to concentrate the Company's efforts on its
core product lines. This realignment included the discontinuance of the hockey
draft pick trading card products, the write-down of certain license agreements,
elimination of small lot inventories and employee termination costs. In
addition, the charge also includes a $500,000 litigation reserve.
No income tax benefits were reflected in the current year's results.
Fiscal Years Ended January 31, 1995 and 1994
- --------------------------------------------
Fiscal year 1995 was impacted by a number of issues which affected the
results of operations. The sports trading card market had become saturated with
various products which affected sales, inventory levels and product returns; the
Company had expanded into product lines in prior years which, in retrospect,
were not as successful as originally anticipated; the cost structure of the
Company had out-paced the needs of the business; and Paul Goldin, the Company's
Chairman of the Board, Chief Executive Officer and President, died unexpectedly
in May 1994.
17
<PAGE>
In response to these issues, the Company closed the operations of Classic
Games, Inc. in Georgia during the summer and fall of 1994 and relocated it to
New Jersey to improve the coordination of product development and to take
advantage of cross-marketing opportunities. The cost structure of the entire
Company was analyzed and substantial personnel reductions were made. Personnel
levels at the beginning of fiscal 1995 were 350 and were less than 200 at
February 1, 1995. Product lines were analyzed to determine which ones held
long-term benefit to the Company. Inventories were reviewed as part of this
analysis. The Company identified the product lines (and inventories) which it
felt no longer fit within the Company's core business. Also, in order to
generate cash to reduce bank debt, the Company identified certain inventories to
be liquidated through alternate channels of distribution.
As a consequence of these actions, the Company recorded pre-tax charges
totaling $23,800,000 to cover associated costs. The major components of the
charge were:
<TABLE>
<CAPTION>
<S> <C>
Subsidiary relocation $7,100,000
Severance costs 1,700,000
Inventory write-downs and
reserves 13,200,000
Other asset write-downs and
reserves 1,800,000
-----------
$23,800,000
===========
</TABLE>
Aside from the charges for restructuring and product line adjustments
discussed above, sales and gross profit margins were down when compared to
fiscal 1994.
Following is a comparison of sales by major product and distribution
channels:
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
----------- -----------
<S> <C> <C>
Classic Draft Pick Cards $22,618,000 $53,179,000
NFL ProLine Trading Cards 7,731,000 5,730,000
Other Trading Cards 8,493,000 14,040,000
Sports and Entertainment
Memorabilia 29,944,000 34,648,000
Other 4,013,000 998,000
----------- ------------
$72,799,000 $108,595,000
=========== ============
Cable Television $13,465,000 $31,712,000
Retail 30,375,000 53,665,000
Hobby Market 21,748,000 21,399,000
Other 7,211,000 1,819,000
----------- ------------
$72,799,000 $108,595,000
=========== ============
</TABLE>
18
<PAGE>
Sales were down in virtually all product categories primarily due to an
oversupply of trading card product in the marketplace, higher than normal
returns, labor strife in two major league sports, the discontinuance by the
Company of several product lines and the reduction of inventory through
alternative channels of distribution. The Company disposed of approximately
$11,000,000 cost value of such inventory through January 31, 1995 and an
additional $3,500,000 through March 1995.
Gross profit margins in fiscal 1995 were adversely effected compared to
fiscal 1994 due to reduced sales of the Company's draft pick trading card
product, which generally has high margins, and the sale of discontinued product
at a loss or at no margin (after reserves were established). Gross profit
margins were also negatively affected by additional inventory reserves and
increased reserves for returns and allowances.
Selling, general and administrative expenses were generally lower than
fiscal 1994, as variable selling expenses were down substantially due to lower
sales. Payroll and related expenses were also lower, but most of the reductions
did not occur until the second half of the year. Interest expense was higher
than the previous year due to generally higher average bank borrowings and
interest rate increases. Income tax benefits represent expected refunds offset
by adjustment of the net deferred tax assets reported at January 31, 1995. The
Company did not consider it appropriate to record any deferred tax assets at
January 31, 1995.
Seasonality
- -----------
Sales of the Company's trading card products are somewhat seasonal, with
sales peaks typically following the draft for the sport to which the product
relates. The Company has been working to reduce seasonality, to the extent
possible, by having more trading card issues in more limited quantities
throughout the year. Sales of sports-related memorabilia products tend to be
more constant, with sales peaks during holiday seasons and the then current
sport season. Sales of entertainment-related products tend to be less seasonal
and are planned, where possible, to counterbalance the seasonality of sport
trading card products.
Liquidity and Capital Resources
- -------------------------------
Accounts receivable increased modestly during the year while net
inventories were relatively constant. In fiscal 1996, the Company disposed of
$7,500,000 of slow moving inventory identified in fiscal 1995. The income tax
receivable 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 from year ago levels. Operating activities
provided cash of $4,536,000 in fiscal 1996 while operating activities used
$1,001,000 in fiscal 1995.
19
<PAGE>
On July 31, 1995, the Company's loan agreement with Mellon was replaced by
a three year revolving credit facility from Congress Financial Corporation.
Borrowing under the new facility is 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 March 31, 1996, the outstanding
balance was $8,986,000 and unused credit was $146,000.
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 January 31, 1996, the Company has Federal net operating loss carry-
forwards of approximately $14,000,000 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. See
note 9 to the Consolidated Financial Statements.
Recent FASB Pronouncements
- --------------------------
The Financial Accounting Standards Board issued two Standards in fiscal
1996 which would apply to the Company. SFAS No. 121 is effective for fiscal
1997 and requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Implementation of
this Standard is not expected to have a material impact on the Company's
financial position or results of operations.
SFAS No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. In fiscal 1997, if the Company opts
not to account for stock-based compensation in accordance with the Standard, it
will be required to disclose the effect on net income and earnings per share had
adoption occurred. The Company does not anticipate adopting the accounting
provisions of this Standard.
Inflation
- ---------
In recent years, the Company has not experienced any material adverse
effects due to inflation.
Item 8. Financial Statements and Supplemental Data
- --------------------------------------------------
All financial information required by this Item is attached to this Report
beginning on Page F-1.
20
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
--------------------
On November 8, 1995, the Company dismissed BDO Seidman, LLP ("BDO"), as the
Company's independent public accountants and auditors, a capacity in which that
firm had served for several years, and selected Arthur Andersen LLP ("Arthur
Andersen") to replace BDO in this role. The decision to change the Company's
accountants and auditors was approved by the Company's full Board of Directors.
During the fiscal years 1994 and 1995 and the subsequent period through
November 8, 1995, the date on which BDO was dismissed as the Company's
independent public accountants and auditors, there were no disagreements between
the Company and BDO on any matter relating to accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to BDO's satisfaction, would have caused
them to make reference in connection with their reports to the subject matter of
the disagreement. In addition, BDO's reports on the Company's financial
statements for fiscal years 1994 and 1995 contained no adverse opinions or
disclaimers of opinion, nor were such reports qualified as to uncertainty, audit
scope or accounting principles.
The Company authorized BDO to respond fully to the inquiries of Arthur
Andersen. The Company also provided BDO with a copy of the disclosures
contained in the Form 8-K filed with the Securities and Exchange Commission on
November 15, 1995 in connection with BDO's dismissal, and BDO furnished the
Company with a letter addressed to the Securities and Exchange Commission
stating that it agreed with the statements made by the Company therein.
On November 10, 1995, the Company appointed the accounting firm of Arthur
Andersen as the Company's independent public accounts and auditors.
21
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Company
- --------------------------------------------------------
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- -------------- --- ------------------------
<S> <C> <C>
Kenneth Goldin 30 Chairman of the Board,
Chief Executive Officer and
President
Michael A. Berkus 50 Sr. Vice President - Sales
and Marketing
Michael D. Hoppman 34 Chief Financial Officer and
Sr. Vice President - Finance and
Operations
Roy G. Hyden 43 Vice President - Trading Card
Operations
James C. Robinson 31 Vice President - Marketing
Michael A. Balser 28 Vice President - Sports and
Entertainment Licensing
Patrick J. Wujcik 33 Vice President - Administration,
Secretary and General Counsel
Allan R. Lyons 55 Director
Fred A. Shabel 64 Director
Gerald B. Shreiber 54 Director
Richard C. Yancey 69 Director
</TABLE>
Kenneth Goldin has been employed by the Company in various capacities since
1987 and has been a Director of the Company since July 1989. Mr. Goldin has
served as Chairman of the Board, Chief Executive Officer and President of the
Company since May 22, 1994, and served as Executive Vice President from July
1989 through May 21, 1994. Mr. Goldin was a defendant in the class action
litigation described in Item 3 - "Legal Proceedings."
22
<PAGE>
Michael A. Berkus has served as Senior Vice President - Sales and Marketing
of the Company since November 1994, and served as Senior Vice President of
Marketing and Product Development from September 1994 through October 1994. From
April 1993 through August 1994, Mr. Berkus owned and operated All Sport Hobby,
Inc., a sports marketing firm which provided consulting services to various
entities, including the Company. From April 1992 through April 1993, Mr. Berkus
was co-owner and operator of DeCinces Sports Productions, Inc., a company
specializing in sports marketing and licensing relationships. From April 1973 to
April 1993, Mr. Berkus was employed by the Walt Disney Company in various
capacities, including marketing, television production and entertainment
management.
Michael D. Hoppman has been employed by the Company in various capacities,
including Chief Financial Officer, Corporate Controller, Vice President -
Operations and Vice President - Finance, since March 1990. Mr. Hoppman has
served as Chief Financial Officer since March 1996 and Vice President of Finance
of the Company since April 1994. Mr. Hoppman had been an accountant with Ernst
and Young from June 1984 through February 1990, holding various positions,
including audit manager from 1988 to 1990.
Roy G. Hyden has served as the Company's Vice President - Trading Card
Operations since March 1996, and served as Vice President - Operations from
August 1994 through March 1996. Mr. Hyden was the Director of Operations of the
Company's wholly-owned subsidiary, Classic Games, Inc., from October 1993 until
August 1994. From July 1974 through July 1993, Mr. Hyden was employed by
Western Publishing Company, Inc., a manufacturer and distributor of books, games
and puzzles, holding several positions, including director of quality assurance.
James C. Robinson has served as the Company's Vice President - Marketing
since September 1994, and was the Director of Marketing from April 1992 through
August 1994. From April 1990 through March 1992, Mr. Robinson was director of
marketing of SI Sport International, Inc., a sports marketing and management
firm.
Michael A. Balser has been employed by the Company in various capacities
since 1990, and has served as Vice President - Sports and Entertainment
Licensing (responsible for negotiating and maintaining licensing and
sublicensing agreements) since August 1994.
Patrick J. Wujcik has been employed in the Company's legal department since
February 1994. Mr. Wujcik has served as General Counsel since June 1995, as
corporate secretary since March 1995, and as Vice President of Administration
since March 1996. From May 1992 through February 1994, Mr. Wujcik was an
associate in the corporate department of Pepper, Hamilton & Scheetz, a law firm
based in Philadelphia, Pennsylvania. He was an associate at the law firm of
Braemer Abelson & Hitchner prior thereto.
Allan R. Lyons has served as a Director of the Company since June 1990.
Since November 1993, Mr. Lyons has been the Chairman of the Board and Chief
Executive Officer of Piaker & Lyons, P.C., Certified Public Accountants, and he
served as Executive Vice President prior thereto. Mr. Lyons currently serves as
a director of Franklin Credit Management Corporation.
23
<PAGE>
Fred A. Shabel has served as a Director of the Company since March 1991.
Mr. Shabel has been the Chairman of the Board of Spectacor, Inc. ("Spectacor")
since 1980. Spectacor, which is involved in sports and entertainment, includes
among its affiliated entities the National Hockey League's Philadelphia Flyers
and the CoreStates Spectrum (an arena in Philadelphia).
Gerald B. Shreiber has served as a Director of the Company since December
1994. Mr. Shreiber is the founder of J & J Snack Foods Corp. and has served as
its Chairman of the Board, President and Chief Executive Officer since its
inception in 1971.
Richard C. Yancey has served as a Director of the Company since November
1992. Mr. Yancey has been an investment banker with Dillon, Read & Co. Inc.
from 1952 through 1992, holding various positions, including managing director
from 1975 to 1990, director from 1990 to 1991 and senior advisor from 1991
through 1992. Mr. Yancey also provided consulting services to the Company from
October 1991 through September 1994. In addition, Mr. Yancey currently serves
as a director of CapMac Holdings, Inc. and eight mutual fund companies of The
Composite Group.
Item 11. Executive Compensation
- --------------------------------
The following table sets forth certain summary information concerning the
compensation paid to the Company's Chief Executive Officer and other highly
compensated executive officers whose total annual salary and bonus were in
excess of $100,000 (collectively, the "Named Executive Officers") for services
rendered in all capacities to the Company and its subsidiaries for the years
ended January 31, 1996, 1995 and 1994:
24
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long-Term
Compensation
Annual Compensation Awards
- -------------------------------------------------------------------------------------
Fiscal Year
Name & Ended Securities All Other
Principal January Salary Bonus Underlying Compensation
Position 31, ($) ($) Options (#) ($) (1)
- -------- ---------- ------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Kenneth Goldin 1996 362,407 0 70,000 67,003
Chief Executive 1995 375,822 0 150,000 39,499
Officer 1994 190,750 0 120,000 8,363
Michael A. Berkus 1996 195,365 40,000 25,000 60,793
Sr. V.P. - Sales & 1995 10,385 0 50,000 117,400
Marketing (2)
Nathan T. Schelle 1996 140,654 0 15,000 1,163
Sr. V.P.- Finance (3) 1995 15,577 0 0 0
Michael D. Hoppman 1996 104,429 0 10,000 10,314
V.P. - Finance 1995 103,608 0 10,000 8,983
1994 77,423 15,000 18,000 4,800
Michael A. Balser 1996 100,827 0 25,000 49,389
V.P. - Licensing 1995 91,977 0 3,000 0
1994 50,861 0 4,600 0
</TABLE>
_____________
(1) Includes (a) Company contributions under its profit sharing plan for
certain of the Named Executive Officers (Messrs. Goldin $9,355, Hoppman
$4,684 and Balser $4,293); (b) Company payments on behalf of the Named
Executive Officers of certain life insurance premiums (Messrs. Goldin
$43,428 and Hoppman $713); (c) car allowances for certain of the Named
Executive Officers (Messrs. Goldin $14,220, Berkus $12,168, Schelle $1,163,
Hoppman $4,917 and Balser $5,096); (d) certain moving bonuses (Messr.
Balser $40,000); and (e) certain housing and expense allowances (Messr.
Berkus $48,625). See Item 11. "Executive Compensation - Employment
Agreements, Compensatory Arrangements".
(2) As of May 31, 1996, Mr. Berkus will no longer be an officer or employee of
the Company. See Item 11. "Executive Compensation - Employment Agreements,
Compensatory Arrangements."
(3) As of March 22, 1996, Mr. Schelle was no longer an officer or employee of
the Company.
25
<PAGE>
No individual named above received perquisites or non-cash compensation
exceeding the lesser of $50,000 or an amount equal to 10% of such person's
salary and bonus during the fiscal years ended January 31, 1996, 1995 and 1994.
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended January 31, 1996 to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
Option Grants in Fiscal Year Ended January 31, 1996
---------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
- ---------------------------------- ------------------------
Number of
Securities
underlying Exercise
Options or Base
Granted Price Expiration
Name (#) (1) ($/Sh) Date 5% ($)(2) 10%($)(2)
---- --------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Kenneth Goldin 70,000(3) $4.125 1/31/2000 $79,776 $176,825
Michael A. Berkus 25,000(4) $4.00 2/7/2000 $27,628 $61,050
Nathan T. Schelle 15,000(5) $4.00 9/22/96 $16,577 $36,631
Michael D. Hoppman 10,000(6) $4.00 2/7/2000 $11,051 $24,420
Michael A. Balser 20,000(7) $4.00 2/7/2000 $27,103 $48,841
5,000(7) $5.75 6/29/2000 $7,943 $17,552
- -------------------
</TABLE>
(1) The options granted to Messrs. Goldin, Berkus, Schelle, Hoppman and Balser
were granted under the Company's 1992 Stock Incentive Plan, with exercise
prices equal to the fair market value on the date of grant and a term of
five years.
(2) The five percent and ten percent assumed rates of appreciation are mandated
by the rules of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of future stock price or performance.
(3) Effective February 1, 1995, Mr. Goldin was conditionally granted an option
to purchase 70,000 shares of Common Stock at an exercise price of $4.125
per share. The option became exercisable with respect to 35,000 shares on
August 1, 1995. The remainder of the option will become exercisable once
certain conditions are met.
(4) One-third of the option became exercisable February 8, 1996. One-third of
the option will become exercisable on February 8, 1997 and February 8,
1998, respectively.
(5) The option is currently exercisable.
(6) One-third of the option became exercisable February 8, 1996. One-third of
the option will become exercisable on February 8, 1997 and February 8,
1998, respectively.
(7) Effective February 8, 1995, Mr. Balser was granted an option to purchase
20,000 shares of Common Stock at an exercise price of $4.00 per share. The
following options were cancelled: (i) option to purchase 2,000 shares of
Common Stock at an exercise price of $17.00 per share; (ii) option to
purchase 4,600 shares of Common Stock at an exercise price of $8.38 per
share; and (iii) option to purchase 3,000 shares of Common Stock at an
exercise price of $9.13 per share. One-third of the option to purchase
20,000 shares became exercisable on August 8,1995 and February 8, 1996,
respectively, and one-third of the option will become exercisable on August
8, 1996. One-half of the option to purchase 5,000 shares will become
exercisable on June 30, 1996 and June 30, 1997, respectively.
26
<PAGE>
The following table sets forth information concerning each exercise of stock
options during the fiscal year ended January 31, 1996 by each of the Named
Executive Officers and the value of unexercised options held by each of the
Named Executive Officers as of January 31, 1996:
Aggregated Option Exercises in Fiscal Year Ended January 31, 1996
-----------------------------------------------------------------
and Fiscal Year End Option Values
---------------------------------
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options Options
at FY-End (#) at FY-End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable (1)
- ---- --------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
Kenneth Goldin 0 0 348,750/60,000 $114,219/$42,500
Michael A. Berkus 0 0 20,000/45,000 $12,500/$40,625
Nathan T. Schelle 0 0 0/15,000 $0/$16,875
Michael D. Hoppman 0 0 31,333/6,667 $3,750/$7,500
Michael A. Balser 0 0 6,666/18,334 $7,499/$15,001
</TABLE>
---------------
(1) This amount represents the market value of the underlying securities
relating to "in-the-money" options at January 31, 1996 minus the exercise
price of such options.
Employment Agreements, Compensatory Arrangements
------------------------------------------------
Effective January 1, 1994, the Company entered into an employment
agreement with Kenneth Goldin which provides for his employment until
December 31, 1996. Under this agreement, Mr. Goldin receives an annual base
salary of $375,000 and various benefits, including life and health
insurance. In addition, the agreement provides for an additional two year
renewal period at a salary of not less than $425,000, unless either party
provides the other written notice of its desire not to renew at least sixty
(60) days prior to the end of the term.
On December 11, 1995, the Company entered into an employment agreement
with Michael A. Berkus under which Mr. Berkus was to receive an annual base
salary of $215,000. This agreement has been terminated and, effective May
31, 1996, Mr. Berkus will no longer be an officer or employee of the
Company. The Company has entered into a separation and consulting agreement
with Mr. Berkus, pursuant to which it will pay Mr. Berkus consulting fees of
$150,000 during a fourteen month consulting period, unless sooner terminated
by the Company. Mr. Berkus may also earn certain bonuses and commissions if
certain sales targets and business conditions are met.
27
<PAGE>
On February 1, 1992, the Company entered into an employment agreement with
Michael D. Hoppman. This agreement was most recently amended effective May 1,
1994, and provides for Mr. Hoppman's employment until April 30, 1996. Under
this agreement, Mr. Hoppman received an annual salary of $82,000, $105,000 and
$110,000 for the years commencing May 1, 1993, 1994 and 1995, respectively.
The Company's employment agreements with Messrs. Goldin and Hoppman contain
provisions for payments of salary and benefits following a change of control (as
defined) of the Company. In general, under such circumstances, each of Messrs.
Goldin and Hoppman would be entitled to a cash bonus equal to a percentage of
his annual salary at the time the change occurs (Mr. Goldin - 100%; Mr. Hoppman
- - 50%), whether or not he was terminated. In addition, in the event of
involuntary termination (as defined) following a change of control, each of
Messrs. Goldin and Hoppman would be entitled to a lump sum cash payment equal to
a percentage of the then present value of his remaining contractual salary along
with continued life, health and disability insurance benefits for a stated
period.
The agreement with Kenneth Goldin also provides, in the event of voluntary
termination following a change of control, for a lump sum cash payment equal to
50% of the then present value of his remaining contractual salary (but in no
event less than 50% of his annual salary), along with continued life, health and
disability insurance benefits and car allowances for one year.
Director Compensation
- ---------------------
The members of the Company's Compensation Committee during fiscal 1996 were
Allan R. Lyons, Fred A. Shabel, Gerald B. Shreiber and Richard C. Yancey.
Messrs. Lyons, Shabel, Shreiber and Yancey, each an outside director of the
Company, were paid $2,000 for attending audit committee meetings during fiscal
1996. Pursuant to the Company's 1992 Directors Stock Option Plan, in September
1995, Messrs. Lyons, Shabel, Shreiber and Yancey were each granted 15,000 non-
qualified stock options (the "Options") at an exercise price of $6.00 per share
(100% of the fair market value of the Company's Common Stock on the date of
grant), and 10,000 retainer options (the "Retainer Options") at an exercise
price of $7.20 per share (120% of the fair market value of the Company's Common
Stock on the date of grant). The Options and Retainer Options all expire upon
the earlier of ten (10) years from their respective dates of grant or three
months from the date the recipient ceases to be a director of the Company. The
Options and Retainer Options became exercisable on March 1, 1996 and September
1, 1995, respectively. Each of Messrs. Lyons, Shabel, Shreiber and Yancey were
also granted an additional Retainer Option to purchase 5,000 shares at an
exercise price of $7.20 per share, subject to the adoption by the Company's
shareholders of an amendment to the 1992 Directors Stock Option Plan increasing
the number of shares available.
28
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
The following table sets forth, as of April 25, 1996, information
concerning beneficial ownership of shares of the Company's Common Stock with
respect to (i) each person known to the Company to own 5% or more of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Shares
Name and Address Beneficially Percent of
of Beneficial Owner Owned Class
- ------------------- ------------ ----------
<S> <C> <C>
Directors and
Named Executive Officers*
Kenneth Goldin 1,643,650(1) 13.9%
Michael A. Berkus 29,333(2) **
Nathan T. Schelle 15,000(3) **
Michael D. Hoppman 31,333(4) **
Michael A. Balser 17,832(5) **
Allan R. Lyons 207,000(6) 1.7%
Fred A. Shabel 90,000(7) **
Gerald B. Shreiber 55,000(8) **
Richard C. Yancey 155,000(9) 1.3%
Five Percent Shareholders
Carol Goldin 1,274,500(10) 10.8%
516 Garwood Drive
Cherry Hill, NJ 08003
McCullough Andrews & Cappeillo, Inc.*** 701,000 5.9%
101 California Street, Suite 4250
San Francisco, CA 94111
T. Rowe Price
Associates, Inc.*** 700,000 5.9%
100 East Pratt Street
Baltimore, MD 21202
All Directors and Executive
Officers as a Group 2,271,441(11) 19.2%
(12 persons)
</TABLE>
_______________
* The address for each such person is c/o The Score Board, Inc., 1951 Old
Cuthbert Road, Cherry Hill, New Jersey 08034.
** Less than one percent.
*** This information has been derived from a listing prepared by Jaffoni &
Collins, Inc. reflecting reports on Form 13F, for the period ending
December 31, 1995, filed by McCullough Andrews & Cappeillo, Inc. and T.
Rowe Price Associates, Inc.
[Footnotes continued on next page]
29
<PAGE>
_______________
(1) Includes 374,750 shares of Common Stock issuable upon exercise of
currently exercisable stock options. The number of shares of Common Stock
reported also includes 489,500 shares of Common Stock over which Carole
Goldin has sole investment power as Executrix and beneficiary of the Estate
of Paul Goldin; Kenneth Goldin was appointed as attorney and proxy to vote
said shares as of June 6, 1994.
(2) Includes 28,333 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(3) Includes 15,000 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(4) Includes 31,333 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(5) Includes 13,332 shares of Common Stock issuable upon exercise of currently
exercisable stock options and 2,500 shares of Common Stock under an option
exercisable within sixty days from the date of this Form 10-K.
(6) Includes 125,500 shares of Common Stock issuable upon exercise of
currently exercisable stock options.
(7) Includes 85,000 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(8) Includes 55,000 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(9) Includes 115,000 shares of Common Stock issuable upon exercise of
currently exercisable stock options.
(10) Paul Goldin, the former Chairman of the Board, Chief Executive Officer
and President of the Company, passed away on May 21, 1994. Mr. Goldin's
wife, Carole Goldin, is the Executrix and beneficiary of Mr. Goldin's
estate. The number of shares of Common Stock reported includes 489,500
shares of Common Stock owned by Carole Goldin as Executrix and beneficiary
of the Estate of Paul Goldin (Kenneth Goldin was appointed as attorney and
proxy to vote such shares - see footnote (1) above) and 96,000 shares of
Common Stock issuable upon exercise of currently exercisable options held
by the Estate of Paul Goldin.
(11) Includes 865,911 shares of Common Stock issuable upon exercise of
currently exercisable stock options and 6,250 shares under options
exercisable within sixty days from the date of this Form 10-K. The number
of shares of Common Stock reported also includes 489,500 shares of Common
Stock over which Carole Goldin has sole investment power, but which Kenneth
Goldin has power to vote (see footnote (1) above).
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
In June 1994, the Company received proceeds of approximately $2,000,000
from a key man life insurance policy on the life of Paul Goldin. In accordance
with Mr. Goldin's employment agreement, the Company is required to pay
approximately $900,000 to Mr. Goldin's estate. The amount payable to Mr.
Goldin's estate as of January 31, 1996 was $468,000.
30
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
(a) (1) The following financial statements are filed as
part of this Report:
(i) Reports of Independent Public Accountants;
(ii) Consolidated Balance Sheets as of January 31,
1996 and 1995;
(iii) Consolidated Statements of Operations for the
years ended January 31, 1996, 1995 and 1994;
(iv) Consolidated Statements of Stockholders' Equity
for the years ended January 31, 1996, 1995 and
1994; and
(v) Consolidated Statements of Cash Flow for the
years ended January 31, 1996, 1995 and 1994.
(2) The following financial statement schedule
is filed as part of this report:
Schedule II. Valuation and Qualifying Accounts and
Reserves
All other schedules are omitted, as the required information is either
inapplicable or presented in the financial statements or related notes.
(3) The following Exhibits are filed as part of this Report.
3.1 Certificate of Incorporation, including certain amendments
thereto (1)
3.2 Amendment to Certificate of Incorporation, filed on January 14,
1991 (2)
3.3 Amendment to Certificate of Incorporation, filed on October 26,
1993 (11)
3.4 Agreement and Plan of Merger, dated as of March 30, 1994, among
The Score Board, Inc., California Gold, Inc., Catch A Star
Collectibles, Inc., Score Board Retail Corp. and Score Board Sub,
Inc. (11)
3.5 By-Laws (11)
3.6 Amendment to By-Laws, dated June 21, 1990 (3)
10.1 Employment Agreement with Kenneth Goldin* (11)
31
<PAGE>
10.2 Employment Agreement with Michael Hoppman* (11)
10.3 The Score Board, Inc. 1987 Stock Option Plan, as amended* (2)
10.4 401(k) Plan* (2)
10.5 Lease Agreement with Woodlands Joint Venture for office and
warehouse space at Troon Circle, Austell, Georgia (5), and
amendment thereto, dated June 30, 1992 (9)
10.6 Lease Agreement with Woodlands Joint Venture for
warehouse space at Troon Circle, Austell, Georgia (11)
10.7 Lease Agreement with Cherry Hill Commerce Center for office and
warehouse space at Cuthbert Road, Cherry Hill, New Jersey (4)
10.8 Lease Agreement with Cherry Hill Commerce Center for office and
warehouse space at Cuthbert Road, Cherry Hill, New Jersey (11)
10.9 Lease Agreement with Cherry Hill Commerce Center for office and
warehouse space at Cuthbert Road, Cherry Hill, New Jersey (11)
10.10 Sales Representation Agreement with Howard Kay, dated
August 31, 1992 and amendments thereto, dated July 20, 1993 and
November 4, 1993 (11)
10.11 Form of Indenture, dated September 1, 1992, between The
Score Board, Inc. and Bank America Trust Company of New York, as
Trustee (6)
10.12 Form of 9% Convertible Subordinated Debenture (6)
10.13 Loan and Security Agreement by and between Congress
Financial Corporation and The Score Board, Inc. dated July 31, 1995
(13)
10.14 The Score Board, Inc. 1992 Stock Incentive Plan* (7)
10.15 The Score Board, Inc. 1992 Directors Stock Option Plan* (7)
10.16 The Score Board, Inc. 1993 Non-Employee Stock Option Plan* (10)
10.17 Form of Indenture due February 1, 2003, between The
Score Board, Inc. and Bank America Trust Company of New York, as
Trustee (8)
10.18 Form of 9% Convertible Subordinated Debenture (8)
32
<PAGE>
10.19 Merchandise License Agreement between Paramount Pictures and The
Score Board, Inc., dated June 25, 1991, and Amendments
thereto dated October 30, 1991, June 1, 1992, August 13, 1992,
August 1, 1993, September 15, 1993 (11) and November 10, 1994
(13) re: Star Trek memorabilia.
10.20 License Agreement No. ML-2483D with Major League Baseball
Properties, Inc. re: autographed and unautographed memorabilia,
dated May 16, 1994 (13) **
10.21 License Agreement with Major League Baseball Players
Association re: autographed and unautographed memorabilia, dated
May 16, 1994 (13) **
10.22 Retail License Agreement with NBA Properties, Inc. re:
memorabilia, dated June 20, 1994 (13) **
21.1 Subsidiaries (14)
23.1 Consent of Arthur Andersen re: Form S-8 Registration Statement
pertaining to 1987 Stock Option Plan, Form S-8 Registration
Statement pertaining to 1992 Stock Incentive Plan and 1992
Directors Stock Option Plan, Form S-3 Registration Statement
pertaining to 1993 Non-Employee Stock Option Plan (14)
27. Financial Data Schedule (14)
_________________
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report on Form 10-K.
** Confidential Treatment was requested for portions of this document.
33
<PAGE>
(1) Reference is made to the Company's report on Form 10-K for the year ended
January 31, 1989, as filed on May 1, 1989, which is hereby incorporated by
reference.
(2) Reference is made to the Company's Form S-8 Registration Statement, as
filed on February 5, 1991, which is hereby incorporated by reference.
(3) Reference is made to the Company's Form S-1 Registration Statement (File
No. 33-36741) as filed on September 10, 1990, which is hereby
incorporated by reference.
(4) Reference is made to the Company's report on Form 10-K for the year ended
January 31, 1991, as filed on May 1, 1991, which is hereby incorporated by
reference.
(5) Reference is hereby made to the Company's report on Form 10-K, for the
year ended January 31, 1992, as filed on April 1, 1992, which is hereby
incorporated by reference.
(6) Reference is hereby made to the Company's report on Form 8-K, as filed on
August 13, 1992, which is hereby incorporated by reference.
(7) Reference is made to the Company's report on Form 10-Q, for the quarter
ended October 31, 1992, as filed on December 15, 1992, which is hereby
incorporated by reference.
(8) Reference is hereby made to the Company's report on Form 8-K, as filed on
January 26, 1993, which is hereby incorporated by reference.
(9) Reference is hereby made to the Company's report on Form 10-K for the
year ended January 31, 1993, as filed on May 3, 1993, which is hereby
incorporated by reference.
(10) Reference is hereby made to the Company's Form S-3 Registration
Statement, as filed on September 2, 1993, which is hereby incorporated by
reference.
(11) Reference is hereby made to the Company's report on Form 10-K, for the
fiscal year ended January 31, 1994, as filed on May 2, 1994 which is here
by incorporated by reference.
(12) Reference is hereby made to the Company's report on Form 10-K/A-1, as
filed on May 31, 1995, which is hereby incorporated by reference.
(13) Reference is hereby made to the Company's report on Form 8-K, as filed
on August 25, 1995, which is hereby incorporated by reference.
(14) Filed herewith.
(b) Reports on Form 8-K during the fourth quarter of the period covered by
this Report: On November 15, 1995, the Company filed a report on Form 8-K
reporting upon Item 4.
34
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
--------------------------------------
REPORT ON FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
-------------------------------------------
INDEX
-----
REPORTS OF THE INDEPENDENT PUBLIC ACCOUNTANTS 1-2
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 7
CONSOLIDATED STATEMENTS OF CASH FLOW 5-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Score Board, Inc.:
We have audited the accompanying consolidated balance sheet of The Score Board,
Inc. (a New Jersey corporation) and subsidiaries as of January 31, 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flow for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Score Board, Inc. and
subsidiaries as of January 31, 1996, and the results of their operations and
their cash flow for the year then ended, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Philadelphia, Pa.,
March 22, 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholder and Directors
The Score Board, Inc.
We have audited the consolidated balance sheet of The Score Board, Inc.,
as of January 31, 1995 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended January 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion of these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the financial position of The Score
Board, Inc. as of January 31, 1995 and the results of its operations audits cash
flows for each of the two years in the period ended January 31, 1995 in
conformity with generally accepted accounting principles.
BDO SEIDMAN
Philadelphia, Pennsylvania
April 12, 1995
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31
----------------------------
<S> <C> <C>
1996 1995
----------- -----------
CURRENT ASSETS:
Cash $ 142,000 $ 101,000
Accounts receivable, net of reserve
for returns and doubtful accounts of
$1,925,000 and 2,258,000 14,895,000 13,914,000
Inventories 16,449,000 17,251,000
Prepaid expenses and other 2,784,000 3,095,000
Prepaid contracts 1,674,000 5,756,000
Income tax receivable 514,000 8,174,000
----------- -----------
Total current assets 36,458,000 48,291,000
FIXED ASSETS, net 1,616,000 2,992,000
INTANGIBLE AND OTHER ASSETS, net 2,044,000 2,404,000
----------- -----------
$40,118,000 $53,687,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank indebtedness $ -- $14,096,000
Accounts payable 9,122,000 11,461,000
Accrued liabilities 4,401,000 5,488,000
----------- -----------
Total current liabilities 13,523,000 31,045,000
----------- -----------
LONG-TERM DEBT 20,402,000 10,737,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
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 11,822,642 shares in
1996 and 11,249,748 in 1995 118,000 112,000
Additional paid-in capital 19,505,000 17,019,000
Accumulated deficit (13,430,000) (5,226,000)
----------- -----------
Total stockholders' equity 6,193,000 11,905,000
----------- -----------
$40,118,000 $53,687,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-----------------------------------------------------
<S> <C> 1996 <C> 1995 <C> 1994
--------------- --------------- ---------------
NET SALES $ 74,953,000 $ 72,799,000 $ 108,595,000
COST OF GOODS SOLD 45,211,000 57,885,000 59,193,000
--------------- --------------- ---------------
GROSS PROFIT 29,742,000 14,914,000 49,402,000
--------------- --------------- ---------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 28,126,000 30,082,000 32,380,000
REALIGNMENT, RESTRUCTURING AND PRODUCT
LINE ADJUSTMENT COSTS 5,675,000 23,800,000 --
SECURITIES LITIGATION SETTLEMENT 2,175,000 -- --
NET PROCEEDS FROM INSURANCE -- (1,100,000) --
--------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS (6,234,000) (37,868,000) 17,022,000
INTEREST EXPENSE 1,970,000 2,388,000 1,346,000
--------------- --------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES (8,204,000) (40,256,000) 15,676,000
INCOME TAXES (BENEFIT) -- (6,440,000) 5,162,000
--------------- --------------- ---------------
NET INCOME (LOSS) $ (8,204,000) $ (33,816,000) $ 10,514,000
=============== =============== ===============
NET INCOME (LOSS) PER SHARE $ (0.71) $ (3.01) $ 0.95
=============== =============== ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING 11,558,000 11,243,000 11,094,000
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT)
----------- ---------- ------------- ----------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1993 10,474,478 $ 105,000 $ 10,443,000 $ 18,076,000
Exercise of stock options 731,270 7,000 4,586,000 --
Tax benefit of options exercised -- -- 1,822,000 --
Net income -- -- -- 10,514,000
----------- ---------- ------------- ----------------
BALANCE, JANUARY 31, 1994 11,205,748 112,000 16,851,000 28,590,000
Exercise of stock options 44,000 -- 168,000 --
Net loss -- -- -- (33,816,000)
----------- ---------- ------------- ----------------
BALANCE, JANUARY 31, 1995 11,249,748 112,000 17,019,000 (5,226,000)
Exercise of stock options 142,500 2,000 490,000 --
Issuance of shares in settlement of
securities litigation 430,394 4,000 1,996,000 --
Net loss -- -- -- (8,204,000)
BALANCE, JANUARY 31, 1996 11,822,642 $ 118,000 $ 19,505,000 $ (13,430,000)
=========== ========== ============= ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY, 31
------------------------------------------------
1996 1995 1994
-------------- --------------- --------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (8,204,000) $ (33,816,000) $ 10,514,000
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Realignment, restructuring and product line adjustments
costs 5,675,000 23,800,000 --
Cash used in restructuring (1,425,000) (4,514,000) --
Depreciation 1,477,000 1,406,000 937,000
Provision for doubtful accounts and reserve for returns 1,092,000 5,522,000 207,000
Amortization of intangible assets 919,000 968,000 969,000
Settlement of lawsuit 2,000,000 -- --
Deferred taxes -- 1,168,000 (541,000)
Changes in operating assets and liabilities:
Accounts receivable (2,073,000) 7,967,000 (10,460,000)
Inventories (498,000) 2,209,000 (5,146,000)
Prepaid expenses and contracts 943,000 1,594,000 (6,224,000)
Other assets (179,000) (97,000) (86,000)
Accounts payable (2,339,000) 1,883,000 (4,070,000)
Accrued liabilities (435,000) (1,002,000) 806,000
Income tax receivable 7,660,000 (8,089,000) 387,000
-------------- --------------- --------------
Net cash provided by (used in)
operating activities 4,605,000 (1,001,000) (12,707,000)
-------------- --------------- --------------
INVESTING ACTIVITIES:
Business acquisitions -- -- (803,000)
Purchases of fixed assets (152,000) (367,000) (2,421,000)
Proceeds from sales of fixed assets -- 32,000
-------------- --------------- --------------
Net cash used in investing activities (152,000) (367,000) (3,192,000)
-------------- --------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY, 31
------------------------------------------------
1996 1995 1994
------------- --------------- --------------
FINANCING ACTIVITIES:
<S> <C> <C> <C>
Net borrowings (repayments) of bank
indebtedness (4,212,000) (1,934,000) 12,030,000
Proceeds from the exercise of stock options 492,000 168,000 4,593,000
Payments of capital lease obligations (312,000) (372,000) (289,000)
Deferred financing costs (380,000) (116,000) (106,000)
------------- --------------- --------------
Net cash provided by (used in)
financing activities (4,412,000) (2,254,000) 16,228,000
------------- --------------- --------------
NET INCREASE (DECREASE) IN CASH 41,000 (3,622,000) 329,000
CASH, BEGINNING OF YEAR 101,000 3,723,000 3,394,000
------------- --------------- --------------
CASH, END OF YEAR $ 142,000 $ 101,000 $ 3,723,000
============= =============== ==============
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 2,218,000 $ 2,369,000 $ 1,303,000
============= =============== ==============
Cash (received) paid for income taxes $ (7,660,000) $ 481,000 $ 5,168,000
============= =============== ==============
Capital leases $ -- $ 354,000 $ 91,000
============= =============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SUMMARY OF ACCOUNTING POLICIES:
Business Description
The Company designs, manufactures, markets, and distributes sports trading cards
and sports and entertainment related memorabilia products in the United States.
The Company sells on credit to many of its customers which include television
shopping programs, large national retail chain stores, distributors, and hobby
stores.
Principles of Consolidation
The consolidated financial statements include the accounts of The Score Board,
Inc. and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments
The carrying value of the Company's outstanding bank indebtedness is considered
to approximate fair value on January 31, 1996. The fair value of the Company's
$10,500,000 convertible subordinated debentures is estimated at $7,500,000 based
on estimated borrowing rates currently available to the Company for similar
debentures and through discussions with certain debenture holders.
Revenue Recognition
The Company recognizes revenue when merchandise is shipped to customers.
Allowances for estimated returns are provided when sales are recorded.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
F-8
<PAGE>
Fixed Assets and Depreciation
Fixed assets, which include assets leased under capital lease obligations, are
stated at cost. Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets, which range from three to five years.
Intangible Assets
Intangible assets are amortized on a straight-line basis over the term of the
related agreements. Goodwill is amortized over the expected period of benefit,
not to exceed five years. Subsequent to its acquisitions, the Company
continually evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful lives may warrant revision or that the
remaining intangible asset balances may not be recoverable. When factors
indicate that intangible assets should be evaluated for possible impairment, the
Company uses an estimate of the related undiscounted cash flow over the
remaining life in measuring whether intangible assets are recoverable.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires a company to recognize deferred tax liabilities and
assets for the expected future tax consequences of events that have been
recognized in a company's financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse.
Net Income (Loss) Per Share
Net income (loss) 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. Common Stock equivalents are not considered in the calculation of net
loss per share since they would be antidilutive. In 1994, fully-diluted net
income per share was $.92 based on 12,180,000 shares.
New Accounting Pronouncements
The Financial Accounting Standards Board issued two Standards that the Company
is required to adapt effective for fiscal 1997. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Implementation of this
Standard is not expected to have a material impact on the Company's financial
position or results of operations.
SFAS No.123 establishes financial accounting and reporting standards for stock-
based
F-9
<PAGE>
compensation plans. In fiscal 1997, if the Company opts not to apply the
accounting provisions of the Standard, it will be required to disclose the
effect on net income and earnings per share had adoption occurred. The Company
does not anticipate adopting the accounting provisions of this Standard.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform to the current year presentation.
2. REALIGNMENT, RESTRUCTURING AND PRODUCT LINE ADJUSTMENT
COSTS
In fiscal 1996, the Company recorded pre-tax charges of $5,675,000 for the costs
associated with a strategic realignment program designed to reduce costs,
improve operating efficiencies and to concentrate the Company's efforts on its
core product lines. This realignment included the discontinuance of the Hockey
Draft card products, the write-down of certain license agreements, elimination
of small lot inventories and employee termination costs. In addition, the
charge also includes a $500,000 litigation reserve. (See Note 11)
In fiscal 1995, the Company recorded pre-tax charges of $23,800,000 for the
costs associated with a major restructuring of the business, including
relocation of its Classic Games subsidiary, discontinuance of several product
lines, acceleration of inventory dispositions of those product lines through
alternate distribution channels and personnel reductions. The costs associated
with these actions are summarized, as follows:
<TABLE>
<CAPTION>
Year Ended January 31
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
Relocation of subsidiary $ 265,000 $ 7,100,000
Severance costs 160,000 1,700,000
Inventory write downs and reserves 1,300,000 13,200,000
Contracts and other reserves 3,450,000 1,800,000
Litigation 500,000 --
----------- -----------
$ 5,675,000 $23,800,000
=========== ===========
</TABLE>
At January 31, 1996 and 1995, approximately $850,000 and $1,900,000,
respectively, remains in accrued liabilities for relocation and severance costs.
3. NET PROCEEDS FROM OFFICER'S LIFE INSURANCE
In May 1994, the Company's President and Chief Executive Officer passed away.
The Company received proceeds from the key man life insurance policy of
approximately
F-10
<PAGE>
$2,000,000 in June 1994. In accordance with the officer's employment agreement,
the Company is required to pay approximately $900,000 to a named beneficiary.
The liability outstanding at January 31, 1996 is $468,000, which is due to a
relative of the Company's current President and Chief Executive Officer.
4. SECURITIES 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, and on November 6, 1995 the settlement
received final court approval. The settlement required the Company to pay
$3,000,000 in cash (paid by insurance) and $2,000,000 in the Company's Common
Stock (430,394 shares). Accordingly, the Company recorded a one-time pre-tax,
non cash charge of $2,000,000 to reflect the fair value of Common Stock on the
settlement date. In addition, the Company incurred legal and other fees of
approximately $175,000 associated with the shareholder litigation.
5. INVENTORIES
<TABLE>
<CAPTION>
January 31
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Raw materials $ 1,940,000 $ 1,304,000
Work-in-process 1,616,000 720,000
Finished goods 17,516,000 24,917,000
Valuation reserve (4,623,000) ( 9,690,000)
------------ ------------
$ 16,449,000 $ 17,251,000
============ ============
</TABLE>
6. FIXED ASSETS
<TABLE>
<CAPTION>
January 31
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Computer equipment and
software $ 3,069,000 $ 3,044,000
Equipment 965,000 1,007,000
Furniture and fixtures 833,000 833,000
Automobiles 78,000 78,000
Leasehold improvements 1,134,000 1,115,000
------------ ------------
$ 6,079,000 $ 6,077,000
Less accumulated depreciation
and amortization ( 4,463,000) ( 3,085,000)
------------ ------------
$ 1,616,000 $ 2,992,000
============ ============
</TABLE>
F-11
<PAGE>
Computer equipment and software includes amounts under capital leases of
$1,367,000 and $1,457,000 in 1996 and 1995 respectively. Accumulated
amortization of leased property is approximately $1,032,000 and $845,000 at
January 31, 1996 and 1995, respectively.
7. INTANGIBLE AND OTHER ASSETS
<TABLE>
<CAPTION>
January 31
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
License agreements and other $ 2,342,000 $ 2,477,000
Deferred financing costs 1,568,000 1,406,000
Goodwill 595,000 595,000
------------ ------------
4,505,000 4,478,000
Less accumulated amortization ( 2,959,000) ( 2,324,000)
------------ ------------
Net intangible assets 1,546,000 2,154,000
Other assets 498,000 250,000
------------ ------------
$ 2,044,000 $ 2,404,000
============ ============
</TABLE>
8. BANK INDEBTEDNESS AND LONG-TERM DEBT
<TABLE>
<CAPTION>
January 31
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Subordinated debentures $ 10,500,000 $ 10,500,000
Capital lease obligations 219,000 530,000
Revolving credit 9,884,000 --
------------ ------------
20,603,000 11,030,000
Current portion of
capital leases (201,000) ( 293,000)
------------ ------------
$ 20,402,000 $ 10,737,000
============ ============
</TABLE>
In July 1995, the Company obtained a new, three-year revolving credit facility
with Congress Financial Corporation. This facility replaced the previous
financial arrangement with Mellon Bank, N.A. Borrowings under the new 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 January 31,1996, was $12,000,000, of which $9,884,000 was
outstanding and included in long-term debt.
F-12
<PAGE>
On October 7, 1994, the previous financing agreement was amended to extend its
term until April 30, 1995. The facility was changed from a $19,000,000 revolving
credit to a $10,500,000 amortizing term loan and a $10,000,000 revolving credit.
The revolving credit was subject to available collateral and the term loan was
to be fully amortized by April 30, 1995. On December 30, 1994, the agreement was
amended to modify certain financial covenants. The agreement was extended again,
until November 30, 1995. The extension of the credit was agreed upon to allow
the Company sufficient time to find alternative financing.
The outstanding revolving credit at January 31, 1995 was $8,596,000. The
outstanding balance on the amortizing term loan was $5,500,000 at January 31,
1995 which was repaid, in full, in February, 1995. The weighted average interest
rate on the bank debt was 11.5%, 8.31%, and 5.7% in fiscal 1996, 1995 and 1994,
respectively. Year-end interest rates were 10.5%, 10.0% - 10.5% (1995) and
5.5% - 6.25% (1994); maximum outstanding bank debt during the years 1996, 1995
and 1994 was $14,096,000, $18,380,000 and $16,030,000; average outstandings were
$8,544,000, $15,580,000 and $7,522,000. Outstanding bank debt at January 31,
1995 was all classified as current since replacement financing had not been
obtained.
In fiscal 1993, the Company completed two private placements for a total of
$10,500,000 principal amount of 9% convertible, subordinated debentures and
received $9,429,000, net of expenses. Debentures for $7,500,000 are due
September 1, 2002 and are convertible into shares of the Company's common stock
at a price of $9.56 per share. The remaining $3,000,000 are due February 1,
2003 and are convertible at $11.37 per share. Both became callable in 1996
starting at 106% and declining pro-rata over the respective lives of the
obligations.
9. INCOME TAXES
Income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
Year Ended January 31
---------------------------------------
1996 1995 1994
----------- ------------ ----------
<S> <C> <C> <C>
Current:
Federal $ -- (7,624,000) 3,501,000
State -- (550,000) 380,000
----------- ------------- -----------
-- (8,174,000) 3,881,000
----------- ------------- -----------
Deferred:
Federal (2,700,000) (4,523,000) (300,000)
State -- (265,000) (241,000)
----------- ------------ -----------
(2,700,000) (4,788,000) (541,000)
----------- ------------ -----------
Tax benefit charged to equity -- -- 1,822,000
----------- ------------ -----------
Increase in valuation allowance $(2,700,000) (6,522,000) --
----------- ------------ -----------
$ -- $(6,440,000) $5,162,000
============ ============ ===========
</TABLE>
F-13
<PAGE>
During fiscal 1994, certain optionee and warrant holders sold shares of the
Company's common stock which they had acquired during the year. This early
disposition resulted in a compensation deduction for income tax purposes that
was credited directly to additional paid-in capital.
A reconciliation of the effective income tax rate with the statutory Federal
income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended January 31
---------------------------------------------
1996 1995 1994
----------- -------------- ------------
<S> <C> <C> <C>
Statutory rate (34)% (34)% 34%
State income taxes, net
of Federal benefit -- ( 1)% 2%
Charitable contributions -- -- (3)%
Other 1% 2 % --
Increase in valuation allowance 33% 17% --
------- ------- -------
-- % (16)% 33%
======= ======= =======
</TABLE>
The major components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
January 31
------------ -------------
1996 1995
------------ -------------
<S> <C> <C>
Inventory valuation $ 2,014,000 $ 3,295,000
Contract reserves 1,173,000 --
Accounts receivable reserve 654,000 768,000
Other reserves and accrued expenses 581,000 742,000
Net operating loss carry forwards 4,800,000 1,717,000
------------ -------------
9,222,000 6,522,000
Valuation allowance (9,222,000) ( 6,522,000)
------------ -------------
$ -- $ --
============ =============
</TABLE>
Management has established a full valuation allowance for the net deferred asset
due to the uncertainty of its realization. At January 31, 1996, the Company has
approximately $14,000,000 of Federal net operating loss carry forwards that
begin to expire in 2010.
F-14
<PAGE>
10. STOCKHOLDERS' EQUITY
Stock Option Plans
The Company maintains four stock option plans that permit the grant of options
to purchase shares of common stock. Under the plans, Incentive Stock Options may
be granted to key employees, including officers and directors who are also
employees, and Non-Qualified Options may be granted to key employees, officers,
directors, advisors and consultants. The maximum term of any option under the
plans is ten years and the option price per share may not be less than 100% of
the fair market value of the Company's common stock on the date the option is
granted (110% in the case of incentive stock options granted to persons owning
more than 10% of the voting stock of the Company and 120% in the case of certain
non-qualified stock options granted under the Director's Plan).
Aggregate option activity is as follows:
<TABLE>
<CAPTION>
Number Price
of shares Range
--------- -----
<S> <C> <C>
Outstanding, January 31, 1993 1,530,740 $ .67-17.00
Granted 857,000 8.13-16.65
Exercised ( 731,270) 1.09-13.13
Canceled ( 33,000) 9.13
--------- -----------
Outstanding, January 31, 1994 1,623,200 .67-17.00
Granted 340,000 2.50- 2.75
Exercised ( 44,000) .67- 9.13
Canceled ( 307,800) 8.13-17.00
--------- -----------
Outstanding, January 31, 1995 1,611,400 .67-17.00
Granted 905,750 3.875-7.20
Exercised ( 142,500) 2.75- 4.25
Canceled ( 329,710) 8.38-17.00
--------- -----------
Outstanding, January 31, 1996 2,044,940 .67-17.00
========= ===========
</TABLE>
At January 31, 1996, 329,650 options were available for grant under the plans
and 1,419,000 outstanding options, with an average exercise price of $7.37 per
share, were exercisable.
Other Stock Options
The Company has granted stock options to purchase common stock to non-affiliated
persons. At January 31, 1996, there were 4,000 options exercisable at an
average price of $8.19 per share.
F-15
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
Personal Service Contracts
The Company has entered into personal service contracts with approximately 55
current and former professional athletes and entertainers to purchase autographs
on a per signature basis, and also, in some cases, for performing other
services, including personal appearances and licensed product rights on behalf
of the Company. Minimum future commitments under these contracts are as
follows:
<TABLE>
<CAPTION>
Year ending January 31,
<S> <C>
1997 $7,036,000
1998 3,980,000
1999 2,805,000
2000 2,455,000
2001 455,000
Thereafter 2,503,000
</TABLE>
The Company is often required to make initial cash payments on personal service
contracts. As of January 31, 1996 and 1995, the Company has prepaid $1,674,000
and $5,756,000, respectively, under these contracts.
Lease Agreements
The Company leases office and warehouse space under leases accounted for as
operating leases. At January 31, 1996, future minimum annual rentals for leases
with remaining lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Year ending January 31,
<S> <C>
1997 $1,070,000
1998 497,000
1999 358,000
2000 75,000
</TABLE>
Rent expense for the years ended January 31, 1996, 1995 and 1994 were $701,000,
$1,008,000 and $1,174,000, respectively. Subleasing income of $270,000,
$194,000, $132,000 and $27,000 is to be received in fiscal 1997, 1998, 1999 and
2000, respectively.
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
F-16
<PAGE>
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 has provided a $500,000
reserve 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 operations.
The Company is involved in various other legal proceedings and claims incident
to the conduct of its business which management believes will not have a
significant adverse impact on the financial position or results of operations.
12. ROYALTY AGREEMENTS
The Company has signed various royalty agreements which permit the Company to
produce and market products utilizing licensed names, logos, likenesses and
trademarks. Most royalty agreements require the Company to pay a royalty equal
to a percentage of specified net sales ranging from 3.75% to 20% subject to
minimum guarantees aggregating $4,529,000 of which the Company has paid
$3,934,000 as of January 31, 1996. The royalty agreements expire at various
dates through October 30, 2002. Royalty expense under the agreements for the
years ended January 31, 1996, 1995 and 1994 was $6,167,000, $4,165,000 and
$5,043,000, respectively.
13. SIGNIFICANT CUSTOMER AND SUPPLIER CONCENTRATIONS
During the year January 31, 1996, sales to national and regional cable
television networks accounted for approximately 22% of the Company's net sales.
Sales to one of these television shopping networks during fiscals 1996, 1995,
and 1994 were approximately $12,872,000, $11,289,000 and $17,522,000,
respectively. The Company has no written agreement with this customer. The
loss of this customer, or cable television as a sales outlet for the Company's
products, could have a material adverse impact on the Company's results of
operations.
At January 31, 1996, the Company had accounts receivable totaling $4,378,000,
or 27% of gross receivables due from another major customer who is in the retail
business. Sales to that customer in fiscal 1996 were $7,097,000. In addition,
during fiscal 1994, the Company had sales directly and indirectly to another
customer of $9,567,000.
The Company relies on one key vendor as the sole supplier of its trading card
products. Although management believes that other vendors could provide similar
products on relatively comparable terms, an unanticipated change in this
vendor's supply to the Company could have a material adverse impact on the
Company's results of operations.
F-17
<PAGE>
14. BENEFIT PLAN
The Company has a defined contribution (401K) plan under which participation is
available to all employees meeting minimum service and age requirements.
Participants may contribute a percentage of their compensation limited to a
dollar amount set by law. The Company may contribute a discretionary matching
contribution up to 4% of the employees salary, and an additional discretionary
amount determined each year by the Company. Employer contributions for the
years ended January 31, 1996, 1995 and 1994 were $100,000, $120,000 and
$136,000, respectively.
15. UNAUDITED QUARTERLY DATA - (IN THOUSANDS, EXCEPT PER SHARE DATA)
The following is a summary of unaudited quarterly data for the 1996 and 1995
fiscal years:
<TABLE>
<CAPTION>
1996 First Second Third Fourth
Quarter Quarter Quarter Quarter
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Net sales $15,562 $16,499 $23,947 $ 18,945
Gross profit 6,853 7,881 9,533 5,475
Income (loss) from operations 990 (1,080) 2,277 ( 8,421)
Net income (loss) 526 (1,538) 1,768 ( 8,960)
Net income (loss) per share 0.05 (0.14) 0.16 (0.76)
</TABLE>
<TABLE>
<CAPTION>
1995 First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $11,232 $ 24,411 $ 18,019 $ 19,137
Gross profit 2,149 6,173 917 5,675
Income (loss) from operations (9,909) (12,046) (11,282) ( 4,631)
Net income (loss) (6,785) ( 8,206) (13,830) ( 4,995)
Net income (loss) per share (0.62) (0.72) (1.23) (0.44)
</TABLE>
Fiscal 1996 results include a pre-tax charge of $2,175,000 in the second quarter
for settlement of securities litigation and $5,675,000 in the fourth quarter for
realignment and litigation. Fiscal 1995 results include pre-tax restructuring
and product line adjustments of $5,950,000, $11,500,000, $4,500,000 and
$1,850,000 in the first through fourth quarters, respectively.
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Score Board, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of The Score Board, Inc. and subsidiaries
included in this Form 10-K and have issued our report thereon dated March 22,
1996. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14a(2) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
March 22, 1996
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Stockholders and Directors
The Score Board, Inc.
The audits referred to in our report dated April 12, 1995 relating to the
consolidated financial statements of The Score Board, Inc., which is contained
in Item 8 of this Form 10-K, included in the audit of the financial statement
schedule listed in the accompanying index. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly in all
material respects, the information set forth therein.
BDO SEIDMAN
Philadelphia, Pennsylvania
April 12, 1995
F-20
<PAGE>
THE SCORE BOARD, INC.
---------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
YEARS ENDED JANUARY 31, 1996, 1995, 1994
----------------------------------------
INDEX
II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
All other financial statement schedules are omitted because the conditions
requiring their filing do not exist or because the required information is
disclosed in the financial statements filed, including the notes thereof.
F21
<PAGE>
THE SCORE BOARD, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
<TABLE>
<CAPTION>
Balance at Additions Deduction Balance at
Beginning Charged to from End of
Description of Period Expense Reserves(a) Period
- ------------------------ ---------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
RESERVE DEDUCTED
IN THE BALANCE
SHEET FROM THE
ASSET TO WHICH IT
APPLIES:
Allowance for doubtful
accounts and returns:
Year ended 1/31/96 $2,258,000 $1,092,000 $(1,425,000) $1,925,000
Year ended 1/31/95 $1,203,000 $5,522,000 $(4,467,000) $2,258,000
Year ended 1/31/94 $ 332,000 $1,092,000 $ (221,000) $1,203,000(b)
Inventory valuation
allowance:
Year ended 1/31/96 $9,690,000 $ (824,000) $(4,244,000) $4,622,000
Year ended 1/31/95 $1,219,000 $13,939,000 $(5,468,000) $9,690,000
Year ended 1/31/94 $ 925,000 $ 294,000 $ 0 $1,219,000
</TABLE>
(a) Uncollectible accounts charged against the reserve, net of recoveries.
(b) Balance at year-end January 31, 1994 includes $885,000 for returns and
allowances which had been reported as a direct reduction of accounts
receivable.
F22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized on May 10, 1996.
THE SCORE BOARD, INC.
By: /s/ Kenneth Goldin
-------------------------------------
Kenneth Goldin, Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/Kenneth Goldin Chairman, President, May 15, 1996
- ------------------------- Principal Executive
Kenneth Goldin Officer and Director
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF COMPANY
Name of Subsidiary State of Incorporation
------------------ ----------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. Americana Memorabilia, Inc. New Jersey
2. Classic Games, Inc. Delaware
3. Classic Marketing, Inc. New Jersey
4. SB Acquisition Corp. New Jersey
5. The Score Board Holding Corporation Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
our report included in this Form 10-K, into the Company's previously filed Form
S-8 Registration Statements, file numbers 33-38905 and 33-54736 and Form S-3
Registration Statement number 33-68348.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
April 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AS OF, AND
FOR THE TWELVE MONTH ENDED, JANUARY 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS. </LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 142,000
<SECURITIES> 0
<RECEIVABLES> 16,820,000
<ALLOWANCES> 1,925,000
<INVENTORY> 16,449,000
<CURRENT-ASSETS> 36,458,000
<PP&E> 6,079,000
<DEPRECIATION> 4,463,000
<TOTAL-ASSETS> 40,118,000
<CURRENT-LIABILITIES> 13,523,000
<BONDS> 20,402,000
0
0
<COMMON> 118,000
<OTHER-SE> 6,075,000
<TOTAL-LIABILITY-AND-EQUITY> 40,118,000
<SALES> 74,953,000
<TOTAL-REVENUES> 74,953,000
<CGS> 45,211,000
<TOTAL-COSTS> 45,211,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,092,000
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