<PAGE>
Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No 0-16913
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THE SCORE BOARD, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2766077
- --------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1951 Old Cuthbert Road, Cherry Hill, New Jersey 08034
----------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(609) 354-9000
----------------------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares outstanding on July 31, 1996 is 12,766,648
Total No. of Pages: 11
Exhibit Index: Page 10
<PAGE>
THE SCORE BOARD, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
July 31, 1996 (Unaudited) and
January 31, 1996 3
Consolidated Statements of Operations
For the Three and Six Months Ended
July 31, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows
For the Six Months Ended
July 31, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Financial
Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
</TABLE>
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<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31, January 31,
--------------- ---------------
1996 1996
--------------- ---------------
(UNAUDITED)
---------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 86,000 $ 142,000
Accounts receivable, net of reserve for returns and
doubtful accounts of $2,500,000 and $1,925,000 8,758,000 14,895,000
Inventories 12,171,000 16,449,000
Prepaid expenses and other 911,000 2,784,000
Prepaid contracts 458,000 1,674,000
Income taxes receivable 514,000 514,000
--------------- ---------------
Total Current Assets 22,898,000 36,458,000
FIXED ASSETS, net 1,405,000 1,616,000
INTANGIBLE AND OTHER ASSETS, net 1,517,000 2,044,000
--------------- ---------------
$ 25,820,000 $ 40,118,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,311,000 $ 9,122,000
Accrued liabilities 4,354,000 4,401,000
--------------- ---------------
Total Current Liabilities 15,665,000 13,523,000
--------------- ---------------
LONG-TERM DEBT 11,684,000 20,402,000
--------------- ---------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value, authorized
10,000,000 shares; none issued
Common stock - $.01 par value, authorized 30,000,000
shares; issued 12,766,648 at July 31, 1996
and 11,822,642 at January 31, 1996 128,000 118,000
Additional paid-in capital 24,845,000 19,505,000
Accumulated deficit (26,502,000) (13,430,000)
--------------- ---------------
Total Stockholders' Equity (1,529,000) 6,193,000
--------------- ---------------
$ 25,820,000 $ 40,118,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------- ----------------------------------
July 31, 1996 July 31, 1995 July 31, 1996 July 31, 1995
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 9,543,000 $ 16,499,000 $ 23,710,000 $ 32,061,000
COST OF GOODS SOLD 14,342,000 8,618,000 24,954,000 17,327,000
---------------- --------------- ---------------- ---------------
GROSS PROFIT (4,799,000) 7,881,000 (1,244,000) 14,734,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,838,000 6,786,000 11,936,000 12,649,000
SECURITIES LITIGATION
SETTLEMENT -- 2,175,000 -- 2,175,000
---------------- --------------- ---------------- ---------------
INCOME (LOSS) FROM OPERATIONS (11,637,000) (1,080,000) (13,180,000) (90,000)
INTEREST EXPENSE 327,000 458,000 846,000 922,000
---------------- --------------- ---------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY GAIN (11,964,000) (1,538,000) (14,026,000) (1,012,000)
INCOME TAXES (BENEFIT) -- -- -- --
---------------- --------------- ---------------- ---------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY GAIN (11,964,000) (1,538,000) (14,026,000) (1,012,000)
EXTRAORDINARY GAIN RESULTING
FROM EARLY EXTINGUISHMENT OF
DEBT 954,000 -- 954,000 --
---------------- --------------- ---------------- ---------------
NET INCOME (LOSS) $ (11,010,000) $ (1,538,000) $ (13,072,000) $ (1,012,000)
================ =============== ================ ===============
NET INCOME (LOSS) PER SHARE BEFORE
EXTRAORDINARY GAIN $ (0.94) $ (0.14) $ (1.14) $ (0.09)
================ =============== ================ ===============
NET INCOME (LOSS) PER SHARE $ (0.86) $ (0.14) $ (1.06) $ (0.09)
================ =============== ================ ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING 12,762,000 11,250,000 12,294,000 11,250,000
================ =============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these statements
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<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------
July 31, 1996 July 31, 1995
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (13,072,000) $ (1,012,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities :
Cash used in restructuring (324,000) (1,150,000)
Depreciation 748,000 705,000
Provision for doubtful accounts and reserve for returns 449,000 603,000
Amortization of intangible assets 452,000 401,000
Settlement of lawsuit -- -- 2,000,000
Gain on early extinguishment of debt (954,000) --
Changes in operating assets and liabilities:
Accounts receivable 5,688,000 (488,000)
Inventories 4,278,000 224,000
Prepaid expenses and contracts 3,079,000 1,338,000
Other assets (308,000) 5,000
Accounts payable 2,189,000 (3,131,000)
Accrued liabilities 453,000 (237,000)
Income tax receivable -- -- 7,660,000
---------------- ---------------
Net cash provided by operating activities 2,678,000 6,918,000
INVESTING ACTIVITIES:
Purchases of fixed assets (537,000) (31,000)
---------------- ---------------
Net cash used in investing activities (537,000) (31,000)
FINANCING ACTIVITIES :
Net borrowings (repayments) of bank indebtedness (2,218,000) (6,225,000)
Proceeds from the exercise of stock options 115,000 --
Payments for other assets -- -- (244,000)
Payments of capital lease obligations (94,000) (184,000)
---------------- ---------------
Net cash used in financing activities (2,197,000) (6,653,000)
---------------- ---------------
NET INCREASE (DECREASE) IN CASH (56,000) 234,000
CASH, BEGINNING OF PERIOD 142,000 101,000
---------------- ---------------
CASH, END OF PERIOD $ 86,000 $ 335,000
================ ===============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION :
Cash paid for interest $ 865,000 $ 1,028,000
================ ===============
Cash received for taxes -- $ 7,660,000
================ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The financial information furnished herein includes, in the opinion of
management, all adjustments (only consisting of normal recurring accruals)
necessary for a fair presentation of financial position as of July 31, 1996 and
the results of operations and cash flow for the six months ended July 31, 1996
and 1995.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of Common
Stock and Common Stock equivalents outstanding during the respective periods.
Common Stock equivalents are not considered in the calculation of net loss per
share since they would be antidilutive.
3. BANK INDEBTEDNESS
In July 1995, the Company obtained a three-year revolving credit facility with
Congress Financial Corporation (the "Bank"). Borrowings under the facility are
available up to $12,000,000, subject to availability, based on eligible accounts
receivable and inventories, as defined. Interest is charged at prime plus 2%.
The facility is secured by essentially all of the Company's assets and subject
to financial and non-financial covenants. The available credit, based on
collateral at July 31, 1996, was $7,942,000, of which $7,684,000 was outstanding
and included in long-term debt. During the second quarter of fiscal 1997, the
Company failed to meet certain financial covenants under the credit facility.
The Bank has agreed to modify these financial covenants.
4. LITIGATION
On February 14, 1995, Upper Deck Authenticated, Ltd. ("UDA") filed suit against
the Company and three unaffiliated entities in the United States District Court
for the Southern District of California alleging, inter alia, that the Company
had engaged in unfair competition and violated UDA's right to use the indicia of
certain athletes on sports memorabilia and collectibles. The Company has
responded to UDA's suit by denying all wrongdoing and filing its own claims
against UDA, Upper Deck Company and their President, charging them with unfair
competition, defamation and tortious interference with current and prospective
contractual relations. Discovery in this matter is ongoing and the Company
provided a $500,000 reserve at January 31, 1996 for estimated legal fees related
to this suit, as management plans to vigorously defend these actions.
The Company does not expect the outcome of these actions to have a material
adverse effect on its financial position or results of operations. The
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<PAGE>
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.
5. LONG TERM OBLIGATIONS
On May 28, 1996, one of the holders of the Company's convertible subordinated
debentures exchanged $3,500,000 and $3,000,000 in principal amount of the
subordinated debentures, due September 1, 2002 and February 1, 2003,
respectively, for 912,000 shares of the Company's Common Stock. The early
retirement of the debentures resulted in a one-time extraordinary pre-tax gain
of approximately $954,000, or $0.075 per share.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
- -------------------------------------------------------------------
and Results of Operations.
--------------------------
Results of Operations
- ---------------------
Quarter Ended July 31, 1996 Compared to Quarter Ended July 31, 1995.
- --------------------------------------------------------------------
Following is a comparison of sales by major product category:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
July 31, 1996 July 31, 1995
------------- -------------
<S> <C> <C>
Classic/(R)/ Trading Cards $3,273,000 $ 8,813,000
Memorabilia 2,625,000 4,385,000
Phone Cards 2,920,000 1,480,000
Other 725,000 1,821,000
---------- -----------
$9,543,000 $16,499,000
========== ===========
</TABLE>
The decrease in net sales was primarily due to reduced sales of Classic trading
card products and, to a lesser extent, reduced sales of memorabilia products.
Trading card sales were negatively impacted by returns and the Company's
decision to reduce production quantities in response to the soft trading card
market. The decrease in memorabilia sales was primarily due to a decrease in
sales of entertainment memorabilia and sales to retailers which occurred in the
first quarter of the current fiscal year as compared to the second quarter of
fiscal 1996. The decrease in sales of trading cards and memorabilia was
partially offset by an increase in sales of phone cards to a large retailer
which did not occur in the second quarter of fiscal 1996.
The decrease in gross margins primarily resulted from the decrease in sales of
trading card products (which traditionally sell at higher margins), returns of
trading card products, and an aggregate $6 million increase in reserves for
product obsolescence and player contracts. The obsolescence reserve was
increased in response to market conditions for trading card products. The
reserve relating to player contracts was increased primarily as the result of
the restructuring of one agreement, pursuant to which the Company was released
from approximately $8 million in future cash payments in exchange for a one-time
payment of approximately $1.5 million consisting of cash, stock and inventory.
The Company experienced an increase in selling expenses ($3,868,000 in 1996 as
compared to $3,736,000 in 1995) primarily due to an increase in licensing fees
relating to the writedown of guaranteed payments under various entertainment
license agreements. The increase in selling expenses was partially offset by a
decrease in commissions, resulting from reduced sales volumes. General and
administrative expenses remained relatively constant ($2,963,000 in 1996 as
compared to $2,980,000 in 1995).
-8-
<PAGE>
Following is a comparison of sales by major product category for the six months
ended July 31, 1996 and July 31, 1995, respectively:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
July 31, 1996 July 31, 1995
------------- -------------
<S> <C> <C>
Classic Trading Cards $ 6,040,000 $14,463,000
Memorabilia 10,372,000 10,018,000
Phone Cards 5,648,000 4,929,000
Other 1,650,000 2,651,000
----------- -----------
$23,710,000 $32,061,000
=========== ===========
</TABLE>
Sales and gross margins decreased mainly due to the reasons noted above.
Selling, general and administrative expenses were lower than the previous year
primarily in advertising expense, which decreased due to reduced advertising
expenditures on card products, and in commissions, which decreased due to the
reasons previously noted. These decreases were offset by an increase in
licensing fees, which increased due to the writedown of certain guaranteed
payments, and other expenses, which increased due to the settlement of a lawsuit
during the first quarter.
Liquidity and Capital Resources
Accounts receivable decreased due to lower sales during the second quarter of
fiscal 1997 as compared to the fourth quarter of fiscal 1996. Inventories
declined due to management's concentrated effort to generate cash and increases
to inventory reserves. Prepaid expenses and prepaid contracts decreased due to
increases in reserves. Accounts payable increased due to timing of payments.
The Company generated $2,678,000 in cash flow from operations primarily due to
the foregoing changes.
On July 31, 1995, the Company obtained a three year revolving credit facility
from Congress Financial Corporation (the "Bank"). Borrowings under the facility
are available up to $12,000,000, subject to availability, 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 September 12, 1996, the outstanding balance was $7,486,000, which
was the maximum credit available. During the second quarter of fiscal 1997, the
Company failed to meet certain financial covenants under the credit facility.
The Bank has agreed to modify these covenants based upon the Company's current
financial position.
Based on present plans and depending on the amount of cash generated from
operations during the next six months, the Company may need to seek additional
financing and/or equity.
At July 31, 1996, the Company has Federal net operating loss carry-forwards of
approximately $26,000,000 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.
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<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
- --------------------------
On February 14, 1995, Upper Deck Authenticated, Ltd. ("UDA") filed suit against
the Company and three unaffiliated entities in the United States District Court
for the Southern District of California alleging, inter alia, that the Company
has engaged in unfair competition and violated UDA's right to use the indicia of
certain athletes on sports memorabilia and collectibles. The Company has
responded to UDA's suit by denying all wrongdoing and filing its own claims
against UDA, Upper Deck Company and Richard McWilliam, charging them with an
attempt to monopolize the sports memorabilia industry, unfair competition,
defamation, tortious interference with current and prospective contractual
relations and abuse of process. Discovery in this matter is ongoing.
The Company is involved in various other legal proceedings and claims incident
to the conduct of its business.
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Exhibits
(27) Financial Data Schedule
(b) The Company has not filed any reports on Form 8-K during the first
quarter for which this report is being filed.
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<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SCORE BOARD, INC.
Date: September 13, 1996 By:/s/ Ken Goldin
----------------------------
Ken Goldin, Chairman and
President
Date: September 13, 1996 By:/s/ Michael D. Hoppman
----------------------------
Michael D. Hoppman
Sr. Vice President, Finance
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<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 SIX MONTHS ENDED, JULY 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 86,000
<SECURITIES> 0
<RECEIVABLES> 11,258,000
<ALLOWANCES> 2,500,000
<INVENTORY> 12,171,000
<CURRENT-ASSETS> 22,898,000
<PP&E> 5,540,000
<DEPRECIATION> 4,135,000
<TOTAL-ASSETS> 25,820,000
<CURRENT-LIABILITIES> 15,665,000
<BONDS> 11,684,000
0
0
<COMMON> 128,000
<OTHER-SE> (1,657,000)
<TOTAL-LIABILITY-AND-EQUITY> 25,820,000
<SALES> 9,543,000
<TOTAL-REVENUES> 9,543,000
<CGS> 14,342,000
<TOTAL-COSTS> 14,342,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 180,000
<INTEREST-EXPENSE> 327,000
<INCOME-PRETAX> (11,964,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,964,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 954,000
<CHANGES> 0
<NET-INCOME> (11,010,000)
<EPS-PRIMARY> (.86)
<EPS-DILUTED> (.86)
</TABLE>
