10QSB 1 a10qsb.txt FORM 10-QSB 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 June 30, 2000 / / 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 JUNE 30, 2000 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Condensed Consolidated Balance Sheet at June 30, 2000 Condensed Consolidated Statements of Income for the three month periods ended June 30, 2000 and 1999 Condensed Consolidated Statements of Cash Flows for the three month periods ended June 30, 2000 and 1999 Notes to Condensed Consolidated Financial 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 JUNE 30, 2000 (DOLLARS IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 229 Restricted cash 20 Accounts receivable, net 1,359 Inventories 4,141 Prepaid expenses and deposits 138 -------- Total current assets 5,887 PROPERTY AND EQUIPMENT, NET 220 INTANGIBLE ASSETS, NET 2,600 OTHER ASSETS, NET 529 -------- TOTAL ASSETS $ 9,236 ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,022 Accrued liabilities 709 Deferred franchise fees 60 -------- Total current liabilities 1,791 LONG-TERM DEBT, LESS CURRENT PORTION 3,443 DETACHABLE STOCK WARRANTS 300 -------- TOTAL LIABILITIES 5,534 -------- COMMITMENTS AND CONTINGENCIES -- STOCKHOLDERS' EQUITY: Common stock, no par value; authorized 100,000,000 shares; 40,148,500 shares issued and outstanding 18,084 Additional paid-in-capital -- Accumulated deficit (14,382) -------- Total stockholders' equity 3,702 -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,236 ========
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 EARNING PER SHARE AMOUNTS)
For the three months ended: June 30, June 30, 2000 1999 ---- ---- REVENUE $ 3,006 $ 2,876 ----------- ----------- EXPENSES: Cost of sales 1,693 1,564 Operating expenses 396 229 General and administrative expenses 664 549 Depreciation and amortization 70 66 ----------- ----------- Total expenses 2,823 2,408 ----------- ----------- INCOME BEFORE INTEREST AND TAXES 183 468 ----------- ----------- Interest, net 132 141 ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAXES 51 327 Current tax expense 4 25 Deferred tax expense -- -- ----------- ----------- NET INCOME $ 47 $ 302 =========== =========== EARNINGS PER SHARE: BASIC: Net income $ 0.00 $ 0.01 =========== =========== Weighted average shares outstanding 40,148,500 40,148,500 =========== =========== DILUTED: Net income $ 0.00 $ 0.01 =========== =========== Weighted average shares outstanding 47,110,730 46,908,936 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. DREAMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED (DOLLARS IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, 2000 1999 ---- ---- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 48 $ (99) ----- ----- Cash flows from investing activities: Purchase of property and equipment (35) (21) ----- ----- NET CASH USED IN INVESTING ACTIVITIES (35) (21) ----- ----- NET CASH PROVIDED BY FINANCING ACTIVITIES -- -- ----- ----- NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 13 (120) CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 236 840 ----- ----- CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 249 $ 720 ===== =====
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 Form 10K-SB filed with the SEC for the fiscal year ended March 31, 2000. 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 has been inactive since its inception. 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. 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. DREAMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 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 June 30, 2000 of approximately $108. The Company believes any credit risk beyond this amount would be negligible. 4. INVENTORIES The components of inventories as of June 30, 2000 are as follows: Memorabilia products $ 3,284 Licensed products 635 Acrylic cases and raw materials 272 ------- 4,191 Less reserve for obsolescence (50) ------- $ 4,141 =======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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 the franchisor of Field of Dreams-Registered Trademark- retail units that 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 June 30, 2000 there were 36 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, eleven 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 JUNE 30, 2000 COMPARED TO THE THREE MONTHS JUNE 30, 1999. REVENUES. Total revenues increased $130, or 5%, from $2.9 million in first quarter of fiscal 2000 to $3.0 million in the first quarter of fiscal 2001. COSTS AND EXPENSES. Cost of sales in the first quarter of fiscal 2001 increased 8.2% over the same quarter in the prior year due to increased sales and a slight change in the sales mix. Operating expenses increased $167, or 73.0%, for the first three months of fiscal 2001 compared to the same quarter of fiscal 2000, due primarily to timing of franchise promotion expenses. The Company incurred franchise promotion expenses of approximately $112 in the first three months of fiscal 2001 versus only $19 in the first three months of fiscal 2000 as a result of current year promotions with Major League Baseball, one of our key strategic partners added since June 1999. General and administrative expenses increased $115, or 20.9% for the first three months of fiscal 2001 compared to the first three months of fiscal 2000, due to expenses associated with the Company's public relations and investor relations strategy implemented after June 1999. Depreciation and amortization increased slightly from $66 in first quarter of fiscal 2000 to $70 in first quarter of fiscal 2001. INTEREST EXPENSE, NET. Net interest expense decreased slightly from $141 in the first quarter of fiscal 2000 to $132 in the first quarter of fiscal 2001. PROVISION FOR INCOME TAXES. At June 30, 2000, 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 2000. However, a provision for income taxes was provided for in the first quarter of fiscal 2001 and 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. At June 30, 2000, the Company's cash and cash equivalents were $229, compared to $203 at March 31, 2000 and $346 as of June 30, 1999. The reduction in cash and cash equivalents since June 30, 1999 primarily relates to inventory buildup. Accounts receivable at June 30, 2000 were $1.4 million compared to $1.6 million at March 31, 2000 and $1.1 million at June 30, 1999. Cash provided by operations amounted to $48 in the first three months of fiscal 2001, compared to cash used of $99 in the first three months of fiscal 2000. The change in cash provided by operating activities is primarily attributed to Q1 fiscal 2000 payments for accounts payable and accrued liabilities associated with the consolidation of DFC's and DPI's infrastructure during fiscal 2000. Investing activities, comprised of only capital expenditures, used $35 in the first three months of fiscal 2001, compared to $21 in fiscal 2000. The capital expenditures in both periods relate to upgrades and purchases of computer equipment utilized in the Company's operations. 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 August 3, 2000 /s/ ----------------------------------- Mark Viner, Chief Financial Officer EXHIBIT INDEX Exhibit 27 - Financial Data Schedule