-----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, DJnSV/AvmIs8xhCnyyIyXUiB72A9YyMhcukdASZNvHALyuL/WZwURv/36Yx3/lgd tYmFgh2q67izifZjUGGbsw== 0000912057-01-005105.txt : 20010214 0000912057-01-005105.hdr.sgml : 20010214 ACCESSION NUMBER: 0000912057-01-005105 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010213 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: 1538236 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 a2037675z10qsb.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 December 31, 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) 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: 55,202,835 - ------------------ Transitional Small Business Disclosure Format (Check One): Yes / / No /X/ DREAMS, INC. TABLE OF CONTENTS FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 2000 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet at December 31, 2000 3 Condensed Consolidated Statements of Income for the three and nine month periods ended December 31, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows for the nine month periods ended December 31, 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 SIGNATURES 12
2 DREAMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET - UNAUDITED AS OF DECEMBER 31, 2000 DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS ASSETS CURRENT ASSETS: Cash and cash equivalents $ 408 Accounts receivable, net 1,819 Inventories 5,565 Prepaid expenses and deposits 92 -------- Total current assets 7,884 PROPERTY AND EQUIPMENT, NET 232 INTANGIBLE ASSETS, NET 2,530 -------- TOTAL ASSETS $ 10,646 ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 819 Accrued liabilities 614 Borrowings under line of credit 1,407 Deferred franchise fees 35 -------- Total current liabilities 2,875 LONG-TERM DEBT, LESS CURRENT PORTION 443 -------- TOTAL LIABILITIES 3,318 -------- COMMITMENTS AND CONTINGENCIES -- STOCKHOLDERS' EQUITY: Common stock, no par value; authorized 100,000,000 shares; 55,202,835 shares issued and outstanding 21,490 Accumulated deficit (14,162) -------- Total stockholders' equity 7,328 -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,646 ========
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 nine months ended: For the three months ended: Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ REVENUE $ 10,536 $ 9,566 $ 4,440 $ 4,051 ------------ ------------ ------------ ------------ EXPENSES: Cost of sales 6,094 5,444 2,577 2,276 Operating expenses 1,026 769 371 404 General and administrative expenses 2,032 1,745 706 635 Depreciation and amortization 194 204 50 69 ------------ ------------ ------------ ------------ Total expenses 9,346 8,162 3,704 3,384 ------------ ------------ ------------ ------------ INCOME BEFORE INTEREST AND TAXES 1,190 1,404 736 667 ------------ ------------ ------------ ------------ Interest, net 334 406 70 133 ------------ ------------ ------------ ------------ INCOME BEFORE PROVISION FOR INCOME TAXES 856 998 666 534 Current tax expense 100 150 76 100 Deferred tax expense -- -- -- -- ------------ ------------ ------------ ------------ INCOME BEFORE EXTRAORDINARY ITEM 756 848 590 434 EXTRAORDINARY ITEM: Early extinguishment of debt (489) -- (489) -- ------------ ------------ ------------ ------------ NET INCOME $ 267 $ 848 $ 101 $ 434 ============ ============ ============ ============ EARNINGS PER SHARE: BASIC: Income from continuing operations $ 0.02 $ 0.02 $ 0.01 $ 0.01 ============ ============ ============ ============ Net income $ 0.01 $ 0.02 $ 0.00 $ 0.01 ============ ============ ============ ============ Weighted average shares outstanding 44,435,413 40,148,500 52,962,643 40,148,500 ============ ============ ============ ============ DILUTED: Income from continuing operations $ 0.01 $ 0.02 $ 0.01 $ 0.01 ============ ============ ============ ============ Net income $ 0.01 $ 0.02 $ 0.00 $ 0.01 ============ ============ ============ ============ Weighted average shares outstanding 51,786,469 47,111,314 56,053,433 47,111,314 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 DREAMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Nine Months Ended December 31, 2000 1999 ------- ------- Net cash provided by operating activities $ 80 $ 314 ------- ------- Cash flows from investing activities: Release of restricted cash -- (325) Purchase of property and equipment (77) (97) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (77) (422) ------- ------- Cash flows from financing activities: Proceeds from sale of stock 4,419 -- Repayment of notes payable (3,000) -- Repurchase of warrants (1,250) -- ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 169 -- ------- ------- NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 172 (108) CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 236 840 ------- ------- CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 408 $ 732 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 DREAMS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED 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 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. 6 DREAMS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED 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 December 31, 2000 of approximately $108. The Company believes any credit risk beyond this amount would be negligible. 4. INVENTORIES The components of inventories as of December 31, 2000 are as follows: Memorabilia products $ 4,101 Licensed products 972 Acrylic cases and raw materials 542 ------- 5,615 Less reserve for obsolescence (50) ------- $ 5,565 -------
7 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 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 December 31, 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, 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, the National Basketball Association, 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 eight 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, 2000 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1999. REVENUE. Total revenue increased $389, or 9.6%, from $4.0 million in the third quarter of fiscal 2000 to $4.4 million in the third quarter of fiscal 2001. The increase was due to the continued development of business from existing customers, an overall increase in the Company's distribution channels and revenue generated from a QVC collectibles show the Company produced during the quarter, a new relationship entered into after June 2000. Additionally, the Company realized incremental sales during the quarter generated from its increased inventory selection. The Company entered into numerous exclusive autograph agreements with athletes during the quarter that has increased its inventory base significantly. Inventory increased $1.1 million during the quarter, or 27.2%, mostly relating to new product offerings associated with new athlete exclusive agreements. The increase in inventory was facilitated by the Company's $3.5 million line of credit entered into during the quarter. 8 COSTS AND EXPENSES. Cost of sales increased $301, or 13.2%, over the same quarter in the prior year. As a percentage of wholesale revenue, cost of sales increased 3.8 percentage points from 61.7% in the third quarter of fiscal 2000 to 65.5% in the third quarter of fiscal 2001. The increase relates to a slight change in the sales mix and more accurately reflects the anticipated and historical annual cost of sales percentage. Operating expenses decreased 8.1% from $404 in the third three months of fiscal 2000 to $371 in the third three months of fiscal 2001 due primarily to a one-time charge of $30 in the prior quarter relating to the utilization of a consulting firm relating to the Company's internet initiative. General and administrative expenses increased 11.2% from $635 in the third quarter of fiscal 2000 to $706 in the third quarter of fiscal 2001. As a percentage of total revenue, general and administrative expenses were comparable in both quarters, at 15.9% and 15.7% for the third quarter of fiscal 2001 and 2000, respectively. Depreciation and amortization decreased from $69 in the third quarter of fiscal 2000 to $50 in third quarter of fiscal 2001 due to the elimination of amortization expense associated with debt issue costs written off during the quarter. INTEREST EXPENSE, NET. Net interest expense decreased from $133 in the third quarter of fiscal 2000 to $70 in the third quarter of fiscal 2001 due to the repayment of a $3.0 million note in October 2000 that resulted in interest savings to the Company. PROVISION FOR INCOME TAXES. At December 31, 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 third quarter of fiscal 2001 and fiscal 2000 for applicable taxes. NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1999. REVENUE. Total revenue increased $970, or 10.1%, from $9.5 million in the first nine months of fiscal 2000 to $10.5 million in the first nine months of fiscal 2001. The increase was due to the continued development of business from existing customers, an overall increase in the Company's distribution channels and revenue generated from two QVC collectibles shows the Company produced during the year, a new relationship entered into after June 2000. COSTS AND EXPENSES. Cost of sales increased $650, or 11.9%, over the same nine months in the prior year; however, as a percentage of wholesale revenue, cost of sales deteriorated slightly from 63.0% in the first nine months of fiscal 2000 to 64.5% in the first nine months of fiscal 2001. The change relates to a slight movement in the sales mix. Operating expenses increased 33.4% from $769 in the first nine months of fiscal 2000 to $1.0 million in the first nine months of fiscal 2001, due primarily to the timing of franchise promotional expenses. Promotional expenses increased approximately $176 over the same period in the prior year as a result of current year promotions with Major League Baseball, one of our key strategic partners added since June 1999. 9 General and administrative expenses increased 16.4% from $1.7 million in the first nine months of fiscal 2000 to $2.0 million in the first nine months of fiscal 2001. As a percentage of total revenue, general and administrative expenses were 19.3% and 18.2% for the first nine months of fiscal 2001 and 2000, respectively. The slight increase relates to public and investor relations strategies implemented since June 1999. Depreciation and amortization decreased slightly from $204 in first nine months of fiscal 2000 to $194 in first nine months of fiscal 2001. INTEREST EXPENSE, NET. Net interest expense decreased 17.6% from $406 in the first nine months of fiscal 2000 to $334 in the first nine months of fiscal 2001. The Company paid off a $3.0 million note in October 2000 that required interest payments of $35 per month. PROVISION FOR INCOME TAXES. At December 31, 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 first nine months of fiscal 2001 and fiscal 2000 for applicable taxes. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, the Company's cash and cash equivalents were $408, compared to $315 at September 30, 2000 and $696 as of December 31, 1999. Net accounts receivable at December 31, 2000 were $1.8 million compared to $1.4 million at September 30, 2000 and $1.4 million at December 31, 1999. Cash provided by operations amounted to $80 in the first nine months of fiscal 2001, compared to $314 in fiscal 2000. Investing activities for the first nine months of fiscal 2001 used $77 relating to purchases and upgrades of the Company's computer equipment. 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 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. During October 2000 the Company filed a Form 8-K announcing that it raised $4.3 million in a private equity financing transaction. The proceeds of the transaction 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 10 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 during the third quarter of fiscal 2001, the Company announced 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 is being used for working capital purposes. 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 2/12/01 ------------------------------- /s/ Mark Viner ----------------------------------- Mark Viner, Chief Financial Officer 12 -----END PRIVACY-ENHANCED MESSAGE-----