<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 October 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
--------------------------------------------------
Commission File No 0-16913
--------------------------------------------------------------
THE SCORE BOARD, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2766077
- ------------------------------ ------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1951 Old Cuthbert Road, Cherry Hill, NJ 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 October 31, 1996 is 12,889,147
Total No. of Pages: 14
Exhibit Index: Page 13
<PAGE>
THE SCORE BOARD, INC.
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
October 31, 1996 (Unaudited) and
January 31, 1996 3
Consolidated Statements of Operations
For the Three and Nine Months Ended
October 31, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows
For the Nine Months Ended
October 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 8-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
-2-
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 31, January 31,
---------------- ----------------
1996 1996
---------------- ----------------
(UNAUDITED)
----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 49,000 $ 142,000
Accounts receivable, net of reserve for returns and
doubtful accounts of $1,800,000 and $1,925,000 9,503,000 14,895,000
Inventories 12,026,000 16,449,000
Prepaid expenses and other 262,000 2,784,000
Prepaid contracts 928,000 1,674,000
Income taxes receivable -- 514,000
---------------- ----------------
Total Current Assets 22,768,000 36,458,000
FIXED ASSETS, net 1,744,000 1,616,000
INTANGIBLE AND OTHER ASSETS, net 1,031,000 2,044,000
---------------- ----------------
$ 25,543,000 $ 40,118,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,204,000 $ 9,122,000
Accrued liabilities 4,087,000 4,401,000
---------------- ----------------
Total Current Liabilities 15,291,000 13,523,000
---------------- ----------------
LONG-TERM DEBT 10,983,000 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 12,889,147 at October 31, 1996
and 11,822,642 at January 31, 1996 129,000 118,000
Additional paid-in capital 25,042,000 19,505,000
Accumulated deficit (25,902,000) (13,430,000)
---------------- ----------------
Total Stockholders' Equity (731,000) 6,193,000
---------------- ----------------
$ 25,543,000 $ 40,118,000
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------------- -------------------------------------
October 31, 1996 October 31, 1995 October 31, 1996 October 31, 1995
------------------ --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 14,567,000 $ 23,947,000 $ 38,277,000 $ 56,008,000
COST OF GOODS SOLD 8,854,000 14,414,000 33,808,000 31,741,000
------------------ --------------- ----------------- ---------------
GROSS PROFIT 5,713,000 9,533,000 4,469,000 24,267,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,806,000 7,256,000 16,742,000 19,905,000
SECURITIES LITIGATION
SETTLEMENT -- -- -- 2,175,000
------------------ --------------- ----------------- ---------------
INCOME (LOSS) FROM OPERATIONS 907,000 2,277,000 (12,273,000) 2,187,000
INTEREST EXPENSE 307,000 509,000 1,153,000 1,431,000
------------------ --------------- ----------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY GAIN 600,000 1,768,000 (13,426,000) 756,000
INCOME TAXES (BENEFIT) -- -- -- --
------------------ --------------- ----------------- ---------------
INCOME (LOSS) BEFORE
EXTRAORDINARY GAIN 600,000 1,768,000 (13,426,000) 756,000
EXTRAORDINARY GAIN RESULTING
FROM EARLY EXTINGUISHMENT OF
DEBT -- -- 954,000 --
------------------ --------------- ----------------- ---------------
INCOME (LOSS) $ 600,000 $ 1,768,000 $ (12,472,000) $ 756,000
================== =============== ================= ===============
INCOME (LOSS) PER SHARE BEFORE
EXTRAORDINARY GAIN $ 0.05 $ 0.16 $ (1.07) $ 0.07
================== =============== ================= ===============
INCOME (LOSS) PER SHARE $ 0.05 $ 0.16 $ (1.00) $ 0.07
================== =============== ================= ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING 12,807,000 11,342,000 12,505,000 11,281,000
================== =============== ================= ===============
</TABLE>
The accompanying notes are an integral part of these statements
-4-
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
October 31, 1996 October 31, 1995
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (loss) $ (12,472,000) $ 756,000
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Cash used in restructuring (359,000) (1,305,000)
Depreciation 1,094,000 1,030,000
Provision for doubtful accounts and reserve for returns 657,000 1,092,000
Amortization of intangible assets 602,000 618,000
Settlement of lawsuit -- 2,000,000
Gain on early extinguishment of debt (954,000) --
Changes in operating assets and liabilities:
Accounts receivable 4,735,000 (4,265,000)
Inventories 4,423,000 (1,739,000)
Prepaid expenses and contracts 3,258,000 833,000
Other assets 29,000 44,000
Accounts payable 2,082,000 (1,095,000)
Accrued liabilities 238,000 (415,000)
Income tax receivable 514,000 7,660,000
------------------ ------------------
Net cash provided by operating activities 3,847,000 5,214,000
INVESTING ACTIVITIES:
Purchases of fixed assets (1,222,000) (60,000)
------------------ ------------------
Net cash used in investing activities (1,222,000) (60,000)
FINANCING ACTIVITIES:
Net borrowings (repayments) of bank indebtedness (2,919,000) (4,386,000)
Proceeds from the exercise of stock options 314,000 371,000
Payments for other assets -- (374,000)
Payments of capital lease obligations (113,000) --
------------------ ------------------
Net cash used in financing activities (2,718,000) (4,389,000)
------------------ ------------------
NET INCREASE (DECREASE) IN CASH (93,000) 765,000
CASH, BEGINNING OF PERIOD 142,000 101,000
------------------ ------------------
CASH, END OF PERIOD $ 49,000 $ 866,000
================== ==================
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,263,000 $ 1,780,000
================== ==================
Cash received for taxes $ 602,000 $ 7,660,000
================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
THE SCORE BOARD, INC. AND SUBSIDIARES
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 October 31, 1996
and the results of operations and cash flow for the nine months ended October
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 October 31, 1996, was $7,714,000, of which $6,983,000 was
outstanding and included in long-term debt. During the second and third
quarters of fiscal 1997, the Company failed to meet certain financial covenants
under the credit facility. The Bank has modified 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 be denying all wrongdoing and filing its own claims
against UDA, Upper Deck Company and their President, charging then with unfair
competition, defamation and tortious interference with current and prospective
contractual relations. Discovery in this matter is ongoing. 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.
In August 1996, a purported class action was filed against the Company alleging,
inter alia, that the practice of randomly inserting chase cards in packages of
trading cards constitutes illegal gambling activity in violation of state and
federal law, including the Racketeer
6
<PAGE>
Influenced and Corrupt Organization Act. Plaintiffs seek certification of a
class of persons who, within the applicable statute of limitations, purchased
packages of the Company's trading cards that might contain randomly inserted
chase cards. The Company has filed a motion to dismiss the suit.
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 its 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
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.
6. SUBSEQUENT EVENT
On November 4, 1996, Technology Leaders II L.P., Technology Leaders Offshore II
C.V. and others (collectively, the "Investors") led a $4 million private equity
placement in the Company. Pursuant to the private placement agreement, the
Company issued 1,600,000 shares of its Common Stock at $2.49 per share and
warrants to acquire 2,270,000 shares of Common Stock a $3.07 per share to the
Investors. Proceeds of the private placement will be used for working capital
purposes.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations.
- --------------
Quarter Ended October 31, 1996 Compared to Quarter Ended October 31, 1995.
- --------------------------------------------------------------------------
Following is a comparison of sales by major product category:
THREE MONTHS ENDED
----------------------------------
October 31, 1996 October 31, 1995
---------------- ----------------
Trading Cards $ 5,750,000 $10,149,000
Memorabilia 5,376,000 8,655,000
Phone Cards 2,519,000 2,798,000
Other 922,000 2,345,000
----------- -----------
$14,567,000 $23,947,000
=========== ===========
The decrease in net sales was primarily due to decreases in sales of trading
cards, memorabilia and "other" products. Trading card sales were down due to
the continued softness in the sports trading card marketplace and the Company's
decision to reduce production quantities in response to the weak industry
climate. The decrease in memorabilia sales was primarily due to fewer high
profile sporting events on which the Company could capitalize, as compared to
those occurring in the comparable quarter of fiscal 1996. Memorabilia sales in
the third quarter of fiscal 1996 also included a significant initial memorabilia
stocking shipment to a national retailer; a similar event did not occur in the
third quarter of fiscal 1997. "Other" sales were down due to reduced sales of
non-autographed products, such as pogs, which the Company no longer produces.
Gross margins were lower primarily as the result of reduced sales, although
margins as a percentage of sales remained comparable for the two periods. The
Company experienced a decrease in selling expenses ($1,701,000 in 1996 as
compared to $3,898,000 in 1995), primarily due to lower commissions and
licensing fees resulting from reduced sales volumes. General and administrative
expenses remained relatively constant ($3,105,000 in 1996 as compared to
$3,358,000 in 1995).
Following is a comparison of sales by major product category for the nine months
ended October 31, 1996 and October 31, 1995, respectively:
NINE MONTHS ENDED
----------------------------------
October 31, 1996 October 31, 1995
---------------- ----------------
Trading Cards $11,790,000 $23,118,000
Memorabilia 15,748,000 20,168,000
Phone Cards 8,167,000 7,766,000
Other 2,572,000 4,956,000
----------- -----------
$38,277,000 $56,008,000
=========== ===========
Sales and gross margins decreased for the reasons noted above and were
negatively impacted by higher than anticipated returns of trading card products.
Gross margins were further reduced due to increases in reserves for inventory
and player contracts. Selling expenses were
8
<PAGE>
lower due to the reasons previously noted, while general and administrative
expenses remained relatively comparable to the prior year.
Liquidity and Capital Resources
Accounts receivable decreased due to lower sales during the third quarter of
fiscal 1997 as compared to the fourth quarter of fiscal 1996. Inventories
declined due to increases to inventory reserves and management's concentrated
effort to generate cash. Prepaid expenses and prepaid contracts decreased due
to increases in reserves. Accounts payable increased due to timing of payments.
The Company generated $3,847,000 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. Interest is charged at prime rate plus 2%.
The facility is secured by essentially all of the Company's assets. At December
12, 1996, the outstanding balance was $7,952,000, which was the maximum credit
available. During the second quarter of fiscal 1997, the Company failed to meet
the working capital covenant in its credit facility. The Bank agreed to reset
the covenant effective April 30, 1996. During the third quarter of fiscal 1997,
the Company failed to meet the working capital and tangible net worth covenants
under the credit facility. The Bank agreed to modify these covenants based upon
the Company's current financial condition.
On November 4, 1996, Technology Leaders II L.P., Technology Leaders Offshore II
C.V. and others (collectively, the "Investors") led a $4 million private equity
placement in the Company. Pursuant to the private placement agreement, the
Company issued 1,600,000 shares of its Common Stock at $2.49 per share and
warrants to acquire 2,270,000 shares of Common Stock at $3.07 per share to the
Investors. Proceeds of the private placement will be used for working capital
purposes.
In December 1996, the Company and Frontier Communications International Inc.
("Frontier"), a subsidiary of Frontier Corporation, entered a five-year
strategic distribution agreement relating to the development and marketing of
prepaid phone cards for the domestic and international markets. Under the
agreement, Frontier has guaranteed certain monthly minimum payments to the
Company which total $10 million over the first three years of the agreement and
would reach a minimum of $20 million over the full five-year term. Either party
may terminate the relationship after the completion of years three or four,
subject to payment of a $2.5 million early termination fee. The Company has
granted Frontier a license to use the names and images of various athletes with
whom the Company has personal service contracts in Frontier's phone card
programs. Frontier will distribute the Company's phone card products into
retail outlets and other avenues of distribution and provide telecommunications
services in support of the
9
<PAGE>
Company's phone card programs. The Company issued Frontier warrants to acquire
125,000 shares of its Common Stock, 25,000 at $3.00 per share, 50,000 at $5.00
per share and 50,000 at $10.00 per share. The Company has also agreed to
nominate a representative of Frontier to the its Board of Directors.
Based upon present plans, the equity received from the Investors and revenues to
be received from Frontier, the Company believes it will have sufficient
liquidity and capital resources, including borrowings under its credit facility,
to fund future operations.
At October 31, 1996, the Company had Federal net operating loss carry-forwards
of approximately $30,000,000 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.
10
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
In August 1996, a purported class action was filed against the Company in the
United States District Court for the District of New Jersey. The suit alleges,
inter alia, that the practice of randomly inserting chase cards in packages of
trading cards constitutes illegal gambling activity in violation of state and
federal law, including the Racketeer Influenced and Corrupt Organization Act.
Plaintiffs seek certification of a class of persons who, within the applicable
statute of limitations, purchased packages of the Company's trading cards that
might contain randomly inserted chase cards. The Company has filed a motion to
dismiss the suit. No discovery has been commenced.
The Company is involved in various other legal proceedings and claims incident
to the conduct of its business.
Item 2. Changes in Securities
- -----------------------------
On September 4, 1996, the Company issued an aggregate of 200,000 shares of its
Common Stock to Mine O'Mine, Inc., Leonard Armato, Bruce Binkow and Gary
Uberstine in connection with the restructuring of a contract between Mine O'Mine
and the Company. The stock was issued in settlement of certain obligations and
in lieu of payments otherwise arising out of the agreement. The Company relied
on the exemption from registration provided by section 4(2) of the Securities
Act of 1933 based upon the fact that such sale was to a single group all having
an interest in a single contract, the recipients acquired the stock for
investment and without a view to a distribution, the recipients had, or were
represented by, advisors with such knowledge and experience in financial matters
that they were capable of evaluating the merits and risks of the prospective
investment, and that the stock certificate contained a legend reflecting
investment intent and restrictions on the transfer of the shares.
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.
11
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SCORE BOARD, INC.
Date: December 15, 1996 By:/s/ Ken Goldin
--------------------------
Ken Goldin, Chairman and
President
Date: December 15, 1996 By:/s/ Michael D. Hoppman
--------------------------
Michael D. Hoppman
Sr. Vice President, Finance
12
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
- --------
Number Description
- ------ -----------
27 Financial Data Schedule
- -- -----------------------
13
<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 NINE MONTHS ENDED, OCTOBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 49,000
<SECURITIES> 0
<RECEIVABLES> 11,303,000
<ALLOWANCES> 1,800,000
<INVENTORY> 12,026,000
<CURRENT-ASSETS> 22,768,000
<PP&E> 6,227,000
<DEPRECIATION> 4,483,000
<TOTAL-ASSETS> 25,543,000
<CURRENT-LIABILITIES> 15,291,000
<BONDS> 10,983,000
0
0
<COMMON> 129,000
<OTHER-SE> (860,000)
<TOTAL-LIABILITY-AND-EQUITY> 25,543,000
<SALES> 38,277,000
<TOTAL-REVENUES> 38,277,000
<CGS> 33,808,000
<TOTAL-COSTS> 33,808,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 270,000
<INTEREST-EXPENSE> 1,153,000
<INCOME-PRETAX> (13,426,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,426,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 954,000
<CHANGES> 0
<NET-INCOME> 12,472,000
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
