-----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, HQOdv0twRUawNGkCyETUHSSJ7Yncky36YJUcZpaH/Z7yUeTgiZF3wuOyIj2Mld3H x/06Ae8JbrWQfrODffD44g== /in/edgar/work/0000912057-00-049182/0000912057-00-049182.txt : 20001114 0000912057-00-049182.hdr.sgml : 20001114 ACCESSION NUMBER: 0000912057-00-049182 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DREAMS INC CENTRAL INDEX KEY: 0000810829 STANDARD INDUSTRIAL CLASSIFICATION: [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: 761520 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 a2030292z10qsb.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 September 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 incorporation or organization) Identification No.) 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) Check whether issuer (1) Filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 54,702,835 Transitional Small Business Disclosure Format (Check One): Yes [ ] No [x] 1 DREAMS, INC. TABLE OF CONTENTS FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2000 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet at September 30, 2000 3 Condensed Consolidated Statements of Income for the three and six month periods ended September 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows for the six month periods ended September 30, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 EXHIBIT INDEX 13
2 DREAMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET - UNAUDITED AS OF SEPTEMBER 30, 2000 DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS ASSETS CURRENT ASSETS: Cash and cash equivalents $ 315 Restricted cash 20 Accounts receivable, net 1,410 Inventories 4,375 Prepaid expenses and deposits 118 -------- Total current assets 6,238 PROPERTY AND EQUIPMENT, NET 211 INTANGIBLE ASSETS, NET 2,565 OTHER ASSETS, NET 489 -------- TOTAL ASSETS $ 9,503 ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,120 Accrued liabilities 779 Deferred franchise fees 40 -------- Total current liabilities 1,939 LONG-TERM DEBT, LESS CURRENT PORTION 3,443 DETACHABLE STOCK WARRANTS 300 -------- TOTAL LIABILITIES 5,682 -------- 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 (14,263) -------- Total stockholders' equity 3,821 -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,503 ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 DREAMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
For the six months ended: For the three months ended: ---------------------------- ---------------------------- Sept., 30 Sept., 30 Sept., 30 Sept., 30 2000 1999 2000 1999 ----------- ----------- ----------- ----------- REVENUE $ 6,096 $ 5,515 $ 3,090 $ 2,639 ----------- ----------- ----------- ----------- EXPENSES: Cost of sales 3,517 3,168 1,824 1,604 Operating expenses 655 365 259 136 General and administrative expenses 1,326 1,110 662 561 Depreciation and amortization 144 135 74 69 ----------- ----------- ----------- ----------- Total expenses 5,642 4,778 2,819 2,370 ----------- ----------- ----------- ----------- INCOME BEFORE INTEREST AND TAXES 454 737 271 269 ----------- ----------- ----------- ----------- Interest, net 264 273 132 132 ----------- ----------- ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAXES 190 464 139 137 Current tax expense 24 50 20 25 Deferred tax expense -- -- -- -- ----------- ----------- ----------- ----------- NET INCOME $ 166 $ 414 $ 119 $ 112 =========== =========== =========== =========== EARNINGS PER SHARE: BASIC: Income from continuing operations $ 0.00 $ 0.01 $ 0.00 $ 0.00 =========== =========== =========== =========== Net income $ 0.00 $ 0.01 $ 0.00 $ 0.00 =========== =========== =========== =========== Weighted average shares outstanding 40,148,500 40,148,500 40,148,500 40,148,500 =========== =========== =========== =========== DILUTED: Income from continuing operations $ 0.00 $ 0.01 $ 0.00 $ 0.00 =========== =========== =========== =========== Net income $ 0.00 $ 0.01 $ 0.00 $ 0.00 =========== =========== =========== =========== Weighted average shares outstanding 49,543,467 47,111,314 49,543,467 47,111,314 =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 4 DREAMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
SIX MONTHS ENDED SEPTEMBER 30, 2000 1999 ----- ----- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 140 $(149) ----- ----- Cash flows from investing activities: Purchase of property and equipment (41) (79) ----- ----- NET CASH USED IN INVESTING ACTIVITIES (41) (79) ----- ----- NET CASH PROVIDED BY FINANCING ACTIVITIES -- -- ----- ----- NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 99 (228) CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 236 840 ----- ----- CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 335 $ 612 ===== =====
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 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 10K-SB, 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 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. 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. 6 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 September 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 September 30, 2000 are as follows: Memorabilia products $ 3,216 Licensed products 857 Acrylic cases and raw materials 352 ------- 4,425 Less reserve for obsolescence (50) ------- $ 4,375 -------
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD LOOKING STATEMENTS Registrant cautions readers that certain important factors may affect actual results and could cause such results to differ materially from any forward-looking statements that may have been made in this Form 10-QSB or that are otherwise made by or on behalf of Registrant. For this purpose, any statements contained in the Form 10-QSB that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "expect," "believe," "anticipate," "intend," "could," "estimate," "plan," or "continue" or the negative other variations thereof or comparable terminology are intended to identify forward-looking statements. 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 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 September 30, 2000, there were 36 Field of Dreams-Registered Trademark- franchises operating in 20 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 SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999. REVENUE. Total revenue increased $451, or 17.1%, from $2.6 million in the second quarter of fiscal 1999 to $3.1 million in the second quarter of fiscal 2000. The increase was partly the result of the Company realizing in August 2000 approximately $250 in revenue 8 generated during a two-hour collectible show on QVC, a television home shopping channel, where the Company sold exclusive products commemorating the Pro Football Hall of Fame induction of Joe Montana. COSTS AND EXPENSES. Cost of sales increased $220, or 14%, over the same quarter in the prior year; however, as a percentage of wholesale revenue, cost of sales improved 2.3 percentage points from 67.6% in the second quarter of 2000 to 65.3% in the second quarter of fiscal 2001. The improvement relates to a slight change in the sales mix. Operating expenses increased 90.1% from $136 in the second three months of fiscal 2000 to $259 in the second three months of fiscal 2001, due primarily to timing of franchise promotional expenses (approximately $48 of increase) and increased travel and other expenses associated with the Company's efforts to raise funds through a private equity offering during the second quarter of fiscal 2001 (approximately $35 of the increase). General and administrative expenses increased 18.1% from $561 in the second three months of fiscal 2000 to $662 in the second three months of fiscal 2001. As a percentage of total revenue, general and administrative expenses were comparable in both quarters, at 21.4% and 21.3% for the second quarter of fiscal 2001 and 2000, respectively. Depreciation and amortization increased from $69 in second quarter of fiscal 2000 to $74 in second quarter of fiscal 2001 due to depreciation associated with assets purchased since September 1999. INTEREST EXPENSE, NET. Net interest expense was $132 for both the second quarter of 2000 and the second quarter of 2001. PROVISION FOR INCOME TAXES. At September 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 state income taxes was provided for in the second quarter of fiscal 2001 and fiscal 2000 for applicable taxes. SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 1999. REVENUE. Total revenue increased $581, or 10.5%, from $5.5 million in the first six months of fiscal 2000 to $6.1 million in the first six months of fiscal 2001. The increase was partly the result of the Company realizing in August 2000 approximately $250 in revenue generated during a two-hour collectible show on QVC, a television home shopping channel, where the Company sold exclusive products commemorating the Pro Football Hall of Fame induction of Joe Montana. COSTS AND EXPENSES. Cost of sales increased $349, or 11%, over the same six months in the prior year; however, as a percentage of wholesale revenue, cost of sales improved slightly from 64.0% in the first six months of fiscal 2000 to 63.7% in the first six months of fiscal 2001. The improvement relates to a slight change in the sales mix. Operating expenses increased 79.4% from $365 in the first six months of fiscal 2000 to $655 in the first six months of fiscal 2001, due primarily to the timing of franchise promotional expenses. Promotional expenses increased approximately $141 over the same period in the prior year as a result of current year 9 promotions with Major League Baseball, one of our key strategic partners added since June 1999. General and administrative expenses increased 19.5% from $1.1 million in the first six months of fiscal 2000 to $1.3 million in the first six months of fiscal 2001. As a percentage of total revenue, general and administrative expenses were 21.8% and 20.1% for the first half of fiscal 2001 and 2000, respectively. The slight increase relates to public and investor relations strategies implemented since June 1999. Depreciation and amortization increased from $135 in first six months of fiscal 2000 to $144 in first six months of fiscal 2001 due to depreciation associated with assets purchased since June 1999. INTEREST EXPENSE, NET. Net interest expense decreased slightly from $273 in the first six months of fiscal 1999 to $264 in the first six months of fiscal 2000. PROVISION FOR INCOME TAXES. At September 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 1999. However, a provision for state income taxes was provided for in the first half of fiscal 2001 and fiscal 2000 for applicable taxes. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, the Company's cash and cash equivalents were $315, compared to $229 at June 30, 2000 and $251 as of September 30, 1999. Accounts receivable at September 30, 2000 were $1.4 million compared to $1.4 million at June 30, 2000 and $1.1 million at September 30, 1999. Cash provided by operations amounted to $140 in the first six months of fiscal 2001, compared to cash used of $149 in the first six months of fiscal 2000. The change in cash provided by operating activities is primarily attributed to 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 $41 in the first six months of fiscal 2001, compared to $79 in same period of 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, beginning in November 2000 its long-term debt obligations require interest-only payments totaling $4 per 10 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. Subsequent to the end of the second quarter of fiscal 2001, during October 2000 the Company filed a Form 8-K announcing that it raised $4.3 million in a private equity financing. The proceeds of the financing were used to retire $3.0 million of long-term debt and repurchase warrants owned by the lender. The retirement of that debt and termination of the warrant rights significantly improves the Company's financial condition and will allow for more aggressive growth. Elimination of the $3.0 million note also eliminates $420 of annual interest expense for the Company. Also subsequent to the end of the second quarter of fiscal 2001, the Company announced in November 2000 that it has established a formula-based revolving Line of Credit with Merrill Lynch Business Financial Services, Inc. for up to $3.5 million. The Line of Credit will be used for working capital purposes. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 attached. (b) On October 23, 2000, Registrant Filed Form 8-K reporting in Item 5 completion of a private financing and retirement of long-term debt and warrants. 11 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 11/9/00 /s/ Mark Viner ----------- ----------------------------------- Mark Viner, Chief Financial Officer 12 EXHIBIT INDEX Exhibit 27 - Financial Data Schedule 13 EX-27 2 a2030292zex-27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DREAMS, INC FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS 6-MOS MAR-31-2001 MAR-31-2000 APR-01-2000 APR-01-1999 SEP-30-2000 SEP-30-1999 335 287 0 0 1,518 1,070 108 188 4,375 3,205 6,238 4,706 530 410 319 232 9,503 8,233 1,939 1,357 0 0 0 0 0 0 18,084 18,084 (14,263) (14,951) 9,503 8,233 5,519 5,499 6,096 5,515 3,517 3,168 5,642 4,778 0 0 0 (23) 264 273 190 464 24 50 166 414 0 0 0 0 0 0 166 414 0 0.01 0 0.01
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