-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BgUcuQ4Dxd4QZdw06QJYhcQKiQr+bitQByyO1KeXOmAAsce+3oGxt+YNPc7B60Ed noYunrwkGBuiXy1mFedV1Q== 0000912057-00-006420.txt : 20000215 0000912057-00-006420.hdr.sgml : 20000215 ACCESSION NUMBER: 0000912057-00-006420 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DREAMS INC CENTRAL INDEX KEY: 0000810829 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 870368170 STATE OF INCORPORATION: UT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-30310 FILM NUMBER: 540534 BUSINESS ADDRESS: STREET 1: 5009 HIATUS ROAD STREET 2: GARDEN STE CITY: SUNRISE STATE: FL ZIP: 33351 BUSINESS PHONE: 8007497529 MAIL ADDRESS: STREET 1: 5009 HIATUS ROAD STREET 2: 5009 HIATUS ROAD CITY: OREM STATE: UT ZIP: 84057 FORMER COMPANY: FORMER CONFORMED NAME: STRATAMERICA CORP DATE OF NAME CHANGE: 19920703 10QSB 1 FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1999 / / TRANSITION REPORT UNDER SECTION 13 OR 5(d) OF THE EXCHANGE ACT For the transition period from ___________ to ___________ Commission file number 0-15399 Dreams, Inc. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Utah 87-0368170 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 5009 Hiatus Road, Sunrise FL 33351 ----------------------------------------------------------------- (Address of principal executive offices) (954) 742 - 8544 ----------------------------------------------------------------- (Issuer's telephone number) ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 40,148,500 Transitional Small Business Disclosure Format (Check One): Yes / / No /X/ DREAMS, INC. TABLE OF CONTENTS Form 10-QSB For the Quarter Ended December 31, 1999 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements. Condensed Consolidated Balance Sheet at December 31, 1999 Condensed Consolidated Statements of Income for the three and nine month periods ended December 31, 1999 and 1998 Condensed Consolidated Statements of Cash Flows for the nine month periods ended December 31, 1999 and 1998 Notes to Condensed ConsolidatedFinancial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K SIGNATURE EXHIBIT INDEX
DREAMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET - UNAUDITED AS OF DECEMBER 31, 1999 (DOLLARS IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 696 Restricted cash 36 Accounts receivable, net 1,413 Inventories 3,747 Prepaid expenses and deposits 106 -------- Total current assets 5,998 PROPERTY AND EQUIPMENT, NET 186 INTANGIBLE ASSETS, NET 2,670 OTHER ASSETS, NET 604 -------- TOTAL ASSETS $ 9,458 ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,060 Accrued liabilities 1,003 Deferred franchise fees 85 -------- Total current liabilities 2,148 LONG-TERM DEBT, LESS CURRENT PORTION 3,443 DETACHABLE STOCK WARRANTS 300 -------- TOTAL LIABILITIES 5,891 -------- COMMITMENTS AND CONTINGENCIES - STOCKHOLDERS' EQUITY: Common stock, $0.00 par value; authorized 100,000,000 shares; 40,148,500 shares issued and outstanding 18,084 Additional paid-in-capital - Accumulated deficit (14,517) -------- Total stockholders' equity 3,567 -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,458 ========
The accompanying notes are an integral part of these condensed consolidated financial statements. DREAMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
For the three months ended: For the nine months ended: December 31, December 31, December 31, December 31, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ REVENUES $ 4,051 $ 2,776 $ 9,566 $ 3,236 EXPENSES: Cost of sales 2,276 1,187 5,444 1,194 Operating expenses 404 395 769 630 General and administrative expenses 635 715 1,745 1,236 Depreciation and amortization 69 53 204 54 ------------ ------------ ------------ ------------ Total expenses 3,384 2,350 8,162 3,114 ------------ ------------ ------------ ------------ INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST AND TAXES 667 426 1,404 122 ------------ ------------ ------------ ------------ Interest, net 133 112 406 186 ------------ ------------ ------------ ------------ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES 534 314 998 (64) Current tax expense 100 - 150 - Deferred tax expense - - - - ------------ ------------ ------------ ------------ INCOME (LOSS) FROM CONTINUING OPERATIONS 434 314 848 (64) DISCONTINUED OPERATIONS: Gain on disposal of restaurant segment - 268 - 268 ------------ ------------ ------------ ------------ INCOME FROM DISCONTINUED OPERATIONS - 268 - 268 ------------ ------------ ------------ ------------ NET INCOME $ 434 $ 582 $ 848 $ 204 ------------ ------------ ------------ ------------ EARNINGS PER SHARE: BASIC: Income from continuing operations $ 0.01 $ 0.01 $ 0.02 $ 0.00 ============ ============ ============ ============ Net income $ 0.01 $ 0.01 $ 0.02 $ 0.00 ============ ============ ============ ============ Weighted average shares outstanding 40,148,500 32,179,984 40,148,500 21,803,524 ============ ============ ============ ============ DILUTED: Income from continuing operations $ 0.01 $ 0.01 $ 0.02 $ 0.00 ============ ============ ============ ============ Net income $ 0.01 $ 0.01 $ 0.02 $ 0.00 ============ ============ ============ ============ Weighted average shares outstanding 40,148,500 32,179,984 40,148,500 21,803,524 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. DREAMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
Nine Months Ended December 31, 1999 1998 ------ ------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 314 $ 13 ------ ------- Cash flows from investing activities: Purchase of Mounted Memories, Inc., net of cash acquired - (2,218) Release of restricted cash as part of Mounted Memories purchase (325) - Purchase of property and equipment (97) (13) ------ ------- NET CASH USED IN INVESTING ACTIVITIES (422) (2,231) ------ ------- Cash flows from financing activities: Proceeds from notes payable - 591 Proceeds from long-term debt - 3,000 Payments on notes payable - (450) Financing costs capitalized - (437) ------ ------- NET CASH PROVIDED BY FINANCING ACTIVITIES - 2,704 ------ ------- NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (108) 486 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 840 89 ------ ------- CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 732 $ 575 ====== =======
The accompanying notes are an integral part of these condensed consolidated financial statements. DREAMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1. MANAGEMENT'S REPRESENTATIONS The condensed consolidated interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The condensed consolidated interim financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto, included in the Company's Registration Statement filed with the SEC on Form 10-SB, for the fiscal year ended March 31, 1999. The accompanying condensed consolidated interim financial statements have been prepared, in all material respects, in conformity with the standards of accounting measurements set forth in Accounting Principles Board Opinion No. 28 and reflect, in the opinion of management, all adjustments, which are of normal recurring nature, necessary to summarize fairly the financial position and results of operations for such periods. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year. 2. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Dreams, Inc. (the "Company") operates through its wholly-owned subsidiary, Dreams Franchise Corporation ("DFC") and through Dreams Entertainment, Inc. ("DEI") and Dreams Products, Inc. ("DPI"), wholly-owned subsidiaries of DFC. DFC is in the business of selling Field of Dreams-Registered Trademark- retail store franchises and generates revenues through the sale of those franchises and continuing royalties. DEI was incorporated in fiscal 1999 and was inactive throughout fiscal 1999 and as of December 31, 1999. DPI is a wholesaler of sports memorabilia products and acrylic cases. DPI pays an annual fee to the National Football League which officially licenses DPI's football memorabilia products. BASIS OF PRESENTATION The accompanying condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All material intercompany transactions and accounts have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to the financial statements. DREAMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS Estimates are used when accounting for uncollectable accounts receivable, inventory obsolescence, depreciation, taxes, contingencies, among others. Actual results could differ from those estimated by management and changes in such estimates may affect amounts reported in future periods. 3. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents and accounts receivable arising from its normal business activities. Franchisee receivables subject the Company to credit risk. The Company's franchisee receivables are derived primarily from royalties on franchisee sales, sales of merchandise to franchisees and the reimbursement of various costs incurred on behalf of franchisees. Regarding retail accounts receivable, the Company believes that credit risk is limited due to the large number of entities comprising the Company's customer base and the diversified industries in which the Company operates. The Company performs certain credit evaluation procedures and does not require collateral. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers, and based upon factors surrounding the credit risk of customers, establishes an allowance for uncollectable accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowances is limited. The Company had a consolidated allowance for doubtful accounts at December 31, 1999 of approximately $188. The Company believes any credit risk beyond this amount would be negligible. 4. INVENTORIES The components of inventories as of December 31, 1999 are as follows: Memorabilia products $ 2,876 Licensed products 602 Acrylic cases and raw materials 394 ------- 3,872 Less reserve for obsolescence (125) ------- $ 3,747 =======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this Form 10-QSB constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Registrant to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: competition; seasonality; success of operating initiatives; new product development and introduction schedules; acceptance of new product offerings; franchise sales; advertising and promotional efforts; adverse publicity; expansion of the franchise chain; availability, locations and terms of sites for franchise development; changes in business strategy or development plans; availability and terms of capital; labor and employee benefit costs; changes in government regulations; and other factors particular to Registrant. GENERAL Dreams, Inc. operates through its wholly-owned subsidiary, Dreams Franchise Corporation ("DFC") and through Dreams Products, Inc. ("DPI") and Dreams Entertainment, Inc. ("DEI"), wholly-owned subsidiaries of DFC. DFC is a franchisor of Field of Dreams-Registered Trademark- retail units which sell sports and celebrity memorabilia products. DFC licenses the right to use the proprietary name Field of Dreams-Registered Trademark- from Universal Studios Licensing, Inc. ("USL"), formerly known as Universal Merchandising, Inc. As of December 31, 1999, there were 34 Field of Dreams-Registered Trademark- franchises operating in 19 states and in the District of Columbia. DPI is a wholesaler of sports memorabilia products and acrylic cases. It sells to a wide customer base, which includes internet companies, traditional catalog companies and other retailers of sports and celebrity memorabilia products, including Field of Dreams-Registered Trademark-. Approximately, ten percent of DPI's revenues are generated through sales to Field of Dreams-Registered Trademark- franchises. DPI is licensed by the National Football League and Major League Baseball as a distributor of autographed products. DEI was incorporated in fiscal 1999 and has been inactive since its inception. The Company believes that the factors that will drive the future growth of its business will be the opening of new franchised units and, to some extent, capitalizing on its relationships with certain entities, such as the National Football League, Major League Baseball and Universal Studios, and with certain well-known athletes, as those relationships and agreements will allow. The Company plans to open approximately ten franchised units each of the next three fiscal years. There can be no assurance, however, that any such franchised units will open or that they will be successful. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1998. REVENUES. Total revenues increased $1.3 million from $2.8 million in the third quarter of fiscal 1999 to $4.1 million in the third quarter of fiscal 2000. The increase relates directly to the November 1988 acquisition of Mounted Memories, Inc. ("MMI"). COSTS AND EXPENSES. The Company's fiscal 2000 third quarter cost of sales of $2.3 million represent MMI's cost of sales for a full quarter. Fiscal 1999 third quarter cost of sales represent MMI's cost of sales for only two months, due to MMI being acquired by the Company in November 1998. As a percentage of sales, cost of sales of wholesale products in the third quarter of fiscal 2000 increased to 61.9% from 56.6% in the same quarter in the prior year due to a slight change in the wholesale sales mix. Operating expenses increased 2.3% from $395 in the third three months of fiscal 1999 to $404 in the third three months of fiscal 2000, due primarily to the acquisition of MMI offset by savings realized by DFC through consolidating its company headquarters with MMI's during the first quarter of fiscal 2000. General and administrative expenses decreased 11.2% from $715 in the third three months of fiscal 1999 to $635 in the third three months of fiscal 2000, due to the Company recognizing a one-time preferential distribution to the Company's Chairman of $409 in the third quarter of fiscal 1999 offset by one additional month of MMI expenses in the third quarter of fiscal 2000 than in the comparable quarter of fiscal 1999. Depreciation and amortization increased from $53 in third quarter of fiscal 1999 to $69 in third quarter of fiscal 2000 due to a full quarter of amortization of goodwill and debt issuance costs associated with the November 1998 acquisition of MMI versus only two months of amortization in the comparable quarter of the prior year. INTEREST EXPENSE, NET. Net interest expense increased from $112 in the third quarter of fiscal 1999 to $133 in the third quarter of fiscal 2000, due to a full quarter of interest charges associated with the $3.0 million note issued by the Company in November 1998 versus only two months of interest in the comparable quarter of the prior year. PROVISION FOR INCOME TAXES. At December 31, 1999, the Company had available net operating loss carryforwards of approximately $4.6 million, which expire in various years beginning in 2007 through 2014. Accordingly, a valuation allowance was provided for the full amount of federal taxes as of the end of fiscal 1999. However, a provision for state income taxes was provided for in the third quarter of fiscal 2000 for applicable taxes. NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1998 REVENUES. Total revenues increased $6.3 million from $3.2 million in the first nine months of fiscal 1999 to $9.5 million in the first nine months of fiscal 2000. The increase relates directly to the November 1988 acquisition of Mounted Memories, Inc. COSTS AND EXPENSES. The Company's cost of sales for the first nine months of fiscal 2000 of $5.4 million represent MMI's cost of sales. Cost of sales for the same period in the prior year consist primarily of MMI's cost of sales for only two months. Operating expenses increased 22.1% from $630 in the first nine months of fiscal 1999 to $769 in the first nine months of fiscal 2000, due primarily to the acquisition of MMI offset by savings realized by DFC through consolidating its company headquarters with MMI's during the first quarter of fiscal 2000. General and administrative expenses increased 41.2% from $1.2 million in the first nine months of fiscal 1999 to $1.7 million in the first nine months of fiscal 2000, due primarily to the acquisition of MMI offset by savings realized by DFC through consolidation of its company headquarters with MMI's during the first quarter of fiscal 2000. Depreciation and amortization increased from $54 in first nine months of fiscal 1999 to $204 in the first nine months of fiscal 2000 due to amortization of goodwill and debt issuance costs associated with the November 1998 acquisition of MMI. INTEREST EXPENSE, NET. Net interest expense increased from $186 in the first nine months of fiscal 1999 to $406 in the first nine months of fiscal 2000, due primarily to interest charges associated with the $3.0 million note issued by the Company in November 1998 offset by elimination of debt after the second quarter of fiscal 1999. PROVISION FOR INCOME TAXES. At December 31, 1999, the Company had available net operating loss carryforwards of approximately $4.6 million, which expire in various years beginning in 2007 through 2014. Accordingly, a valuation allowance was provided for the full amount of federal taxes as of the end of fiscal 1999. However, a provision for state income taxes was provided for in the first nine months of fiscal 2000 for applicable taxes. LIQUIDITY AND CAPITAL RESOURCES The primary sources of the Company's cash are net cash flows from operating activities and short-term vendor financing. Currently, the Company does not have available any established lines of credit with banking facilities. The Company's cash and cash equivalents were $696 as of December 31, 1999 compared with $160 as of December 31, 1998. During the three months ended December 31, 1999, consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") increased $257 to $736 from $479 for the three months ended December 31, 1998. The increase directly relates to DPI's acquisition of MMI in November 1998, which provided $650, or 88.3%, of the Company's third quarter fiscal 2000 EBITDA. The Company presently does not operate or own any Field of Dreams-Registered Trademark- units, and does not plan to own any in the future. It will continue to sell franchised units to prospective and current third-party franchisees. Additionally, there are no major capital expenditures planned for in the foreseeable future, nor any payments planned for off-balance sheet obligations or other demands or commitments for which payments become due after the next 12 months. The Company believes its current available cash position, coupled with its cash forecast for the year and periods beyond, is sufficient to meet its cash needs on both a short-term and long-term basis. The balance sheet has a strong working capital ratio and its long-term debt obligations require interest-only payments totaling $39 per month. The Company's management is not aware of any known trends or demands, commitments, events, or uncertainties, as they relate to liquidity which could negatively affect the Company's ability to operate and grow as planned. PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27 attached. SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dreams, Inc. ------------ Date February 10, 2000 /s/ Mark Viner ----------------------- ----------------------------------- Mark Viner, Chief Financial Officer EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DREAMS, INC. FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS MAR-31-2000 MAR-31-1999 APR-01-1999 APR-01-1998 DEC-31-1999 DEC-31-1998 732 575 0 0 1,413 1,315 188 0 3,747 2,624 5,998 4,575 428 34 242 39 9,458 7,930 2,148 1,867 0 0 0 0 0 0 18,084 18,084 0 0 9,458 7,930 9,547 3,128 9,566 3,236 5,444 1,194 8,162 3,114 0 0 (23) 0 406 186 998 (64) 150 0 848 (64) 0 268 0 0 0 0 848 204 0.02 0.00 0.02 0.00
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