-----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, KEgZfUb7L7An62Hibtavh82DOYsCfs88UxcdnqfxZovT7yMhbKESoFBsGo3vw79Y n2v3F1AP0vNb/WFVyB4q9w== 0001021408-01-505320.txt : 20010815 0001021408-01-505320.hdr.sgml : 20010815 ACCESSION NUMBER: 0001021408-01-505320 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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: 1934 Act SEC FILE NUMBER: 000-30310 FILM NUMBER: 1711845 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 d10qsb.txt FORM 10-QSB FORM 10-QSB SECURITY AND EXCHANGE COMMISSION WASHINGTON, DC 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 June 30, 2001. ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ______________________ to _____________________. Commission file number: 0-15399 DREAMS, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Utah 87-0368170 - ------------------------------------------------------------------------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 2 South University Drive, Plantation, Florida 33324 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (954) 377-0002 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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------------- ------------ APPLICABLE ONLY TO CORPORATE ISSUERS As of August 12, 2001, there were 55,652,835 shares of Common Stock, no par value per share outstanding. Transitional Small Business Disclosure Format: Yes No X -------------- ------------- DREAMS, INC. INDEX PAGE ---- Part I. Financial Information............................ 3 Item 1. Financial Statements (unaudited)................. 3 Condensed Consolidated Balance Sheet............. 3 Condensed Consolidated Statements of Income...... 4 Condensed Consolidated Statements of Cash Flows.. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 10 Part II. Other Information................................ 13 Item 1. Legal proceedings................................ 13 Item 2. Changes in Securities and Use of Proceeds........ 13 Item 6. Exhibits and Reports on Form 8-K................. 13 Part 1. Financial Information Item 1. Financial Statements (unaudited) Dreams, Inc. and Subsidiaries Condensed Consolidated Balance Sheet - Unaudited As of June 30, 2001 (Dollars in Thousands, except share amounts) ASSETS ------ Current assets: Cash and cash equivalents $ 288 Accounts receivable, net 2,155 Notes receivable 16 Inventories 7,264 Prepaid expenses and deposits 69 -------- Total current assets 9,792 Property and equipment, net 571 Other assets 300 Intangible assets, net 2,495 -------- Total assets $ 13,158 ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 1,054 Accrued liabilities 359 Current portion of long-term debt 45 Borrowings under line of credit 3,249 Deferred credits 35 -------- Total current liabilities 4,742 Long-term debt, less current portion 371 -------- Total liabilities 5,113 -------- Commitments and contingencies -- Stockholders' equity: Common stock and paid-in capital, no par value; authorized 100,000,000 shares; 55,652,835 shares issued and outstanding 22,169 Accumulated deficit (13,675) -------- 8,494 Less: deferred compensation (449) -------- Total stockholders' equity 8,045 -------- Total liabilities and stockholders' equity $ 13,158 ========
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 and share amounts)
For the three months ended: ------------------------------------------ June 30, June 30, 2001 2000 ----------- ----------- Revenues $ 3,598 $ 3,006 ----------- ----------- Expenses: Cost of sales 2,059 1,693 Selling, general and administrative expenses 1,223 1,060 Depreciation and amortization 15 70 ----------- ----------- Total expenses 3,297 2,823 ----------- ----------- Income before interest and taxes 301 183 Interest, net 62 132 ----------- ----------- Income before provision for income taxes 239 51 Current tax expense 14 4 Deferred tax expense -- -- ----------- ----------- Net income $ 225 $ 47 =========== =========== Earnings per share: Basic: Earnings per share $ 0.00 $ 0.00 =========== =========== Weighted average shares outstanding 55,520,967 40,148,500 =========== =========== Diluted: Earnings per share $ 0.00 $ 0.00 =========== =========== Weighted average shares outstanding 56,679,160 47,110,730 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. Dreams, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows - Unaudited (Dollars in Thousands)
Three Months Ended June 30, ----------------------------------- 2001 2000 ------- ----- Net cash (used in) provided by operating activities $(1,148) $ 48 ------- ----- Cash flows from investing activities: Purchase of property and equipment (10) (35) ------- ----- Net cash used in investing activities (10) (35) ------- ----- Cash flows from financing activities: Net proceeds from line of credit 1,267 - Repayment on notes payable (11) - ------- ----- Net cash provided by financing activities 1,256 - ------- ----- Net increase in cash, cash equivalents and restricted cash 98 13 Cash, cash equivalents and restricted cash at beginning of period 190 236 ------- ----- Cash, cash equivalents and restricted cash at end of period $ 288 $ 249 ======= =====
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 accounting principles generally accepted in the United States of America 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 Annual Report on Form 10K- SB, for the fiscal year ended March 31, 2001. 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. Summary of Significant Accounting Policies 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. Reclassifications Certain prior period amounts have been reclassified to conform with the current year presentation. New Accounting Pronouncements The Company has adopted as of April 1, 2001 the provisions of SFAS Nos. 141 and 142. Therefore, annual and quarterly amortization of goodwill and trademark of $140 and $35, respectively, is no longer recognized. By September 30, 2001, the Company will perform a transitional fair value based impairment test and if the fair value is less than the recorded value at April 1, 2001, the Company will record an impairment loss in the June 30, 2001 quarter as a cumulative effect of a change in accounting principle. Dreams, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements - Unaudited Dollars in Thousands, Except per Share Amounts Earnings Per Share For the three months ended June 30, 2001, weighted average shares outstanding for basic earnings per share purposes and diluted earnings per share purposes were 55,520,967 and 56,679,160, respectively. Included in diluted shares is the diluted effect of common stock equivalents relating to 1,158,193 stock options. Stock options to purchase up to 225,000 shares of the Company's common stock at an exercise price of $0.75 per share were not considered in the calculation of diluted earnings per share due to their antidilutive effect. 3. Business Segment Information The Company has two reportable segments: the Manufacturing/Distribution segment and the Franchise Operations segment. The Manufacturing/Distribution segment represents the manufacturing and wholesaling of sports memorabilia products and acrylic cases. Sales are handled primarily through in-house salespersons that sell to specialty retailers and other distributors in the United States. The Company's manufacturing and distributing facilities are located in the United States. The majority of the Company's products are manufactured in these facilities. The Franchise Operations segment represents the results of the Company's franchise program. The Company is in the business of selling Field of Dreams retail store franchises in the United States and generates revenues through the sale of those franchises, continuing royalties and sales of certain merchandise to franchises. Summarized financial information concerning the Company's reportable segments is shown in the following tables. Corporate related items, results of insignificant operations and income and expenses not allocated to reportable segments are included in the reconciliations to consolidated results table. Segment information for the three month periods ended June 30, 2001 and 2000 was as follows:
Manufacturing/ Franchise Quarter Ended Distribution Operations Total ------------------------------------------------------------------ -------------- ---------- ------- June 30, 2001 Net sales $3,142 $277 $ 3,419 Intersegment net sales - - - Operating earnings 548 80 628 Total assets 9,680 388 10,068
Dreams, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements - Unaudited Dollars in Thousands, Except per Share Amounts June 30, 2000 Net sales $2,649 $356 $ 3,005 Intersegment net sales - - - Operating earnings 236 7 243 Total assets 5,657 375 6,032
Reconciliation to consolidated amounts is as follows:
Q1 FY2002 Q1 FY2001 ---------- ---------- Revenues: --------- Total revenues for reportable segments $3,419 $3,005 Other revenues 179 1 Eliminations of intersegment revenues - - ------ ------ Total consolidated revenues $3,598 $3,006 Operating earnings: ------------------- Total earnings for reportable segments 628 243 Other loss (327) (60) Interest expense (62) (132) ------ ------ Total consolidated income before taxes $ 239 $ 51
4. Inventories The components of inventories as of June 30, 2001 are as follows: Memorabilia products $5,832 Licensed products 905 Acrylic cases and raw materials 627 ------ 7,364 Less reserve for obsolescence (100) ------ $7,264 ------ Dreams, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements - Unaudited Dollars in Thousands, Except per Share Amounts 5. Capitalized Software In May 2001, the Company issued 400,000 shares of its common stock to an unrelated entity in connection with the design of software. As a result, the Company capitalized $148 to property and equipment based on the fair market value of the Company's common stock on the date of issuance. In addition, in the prior year the Company paid $168 relating to the development of the same software. Accordingly, the Company has total capitalized software cost of $316 as of June 30, 2001. As of the current date, this software has not been placed into service as it was not yet fully functional. The software project requires some additional funding by the Company. Should the software not be placed into service, a write-off will be recorded which could have an impact on the Company's profitability. 6. Intangible Assets The following table presents a reconciliation of net income and earnings per share amounts, as reported in the financial statements, to those amounts adjusted for goodwill and intangible asset amortization determined in accordance with the provisions of SFAS No. 142.
Q1 FY2002 Q1 FY2001 --------- ---------- Reported net income $ 225 $ 47 Add back: goodwill amortization - 10 Add back: trademarks amortization - 25 Income tax effect - (2) ----- ----- Adjusted net income $ 225 $ 80 ----- ----- Basic and diluted earnings per share: Reported net income $0.00 $0.00 Goodwill amortization 0.00 0.00 Trademarks amortization 0.00 0.00 Income tax effect 0.00 0.00 ----- ----- Adjusted net income $0.00 $0.00 ----- -----
As of June 30, 2001, intangible assets consists of the following: Gross Carrying Accumulated Amount Amortization ------ ------------ Goodwill $ 788 $ 83 Trademark 2,000 210 ------ ----- $2,788 $ 293 ------ ----- The trademark and the goodwill were being amortized over 20 years. Upon the initial adoption of SFAS 142, the Company reassessed the useful lives of the intangible assets and determined that the trademark is deemed to have an indefinite useful life because it is expected to generate cash flows indefinitely and the Company intends on continuing to register the trademark. Thus, the Company has ceased amortization of the trademark, as well as the goodwill as of April 1, 2001. 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 under "Management's Discussion and Analysis of Financial Condition and Results of Operations" 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 the Company 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 the Company. NEW ACCOUNTING PRONOUNCEMENTS The Company has adopted as of April 1, 2001 the provisions of SFAS Nos. 141 and 142. Therefore, annual and quarterly amortization of goodwill and trademark of $140,000 and $35,000, respectively, is no longer recognized. By September 30, 2001, the Company will perform a transitional fair value based impairment test and if the fair value is less than the recorded value at April 1, 2001, the Company will record an impairment loss in the June 30, 2001 quarter as a cumulative effect of a change in accounting principle. GENERAL Dreams, Inc. ("Company") operates through its wholly-owned subsidiary Dreams Franchise Corp. ("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 retail units that sell sports and celebrity memorabilia products. As of August 9, 2001, there were 35 Field of Dreams/R/ franchises operating in 18 states. DPI is a manufacturer/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/R/. Approximately 13 percent of DPI's revenues are generated through sales to Field of Dreams/R/ 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 through acquisitions of synergistic businesses, the opening of new Field of Dreams/R/ units and, to some extent, capitalizing on our 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. Consistent with its planned growth, the Company plans to resume opening Field of Dreams stores. There can be no assurance, however, that any additional units will open or that they will be successful. RESULTS OF OPERATIONS Three Months Ended June 30, 2001 Compared to the Three Months Ended June 30, 2000 Revenues. Total revenues increased 20.0% from $3.0 million in the first three months of fiscal 2001 to $3.6 million in the same period of fiscal 2002 due to an increase in the Company's manufacturing/wholesaling operations. Manufacturing and wholesale revenues increased 18.5% from $2.7 million in the first quarter of fiscal 2001 to $3.2 million in the first quarter of fiscal 2002, due primarily to increased product offerings, continued development of business from existing customers and an overall increase in the Company's distribution channels. The Company increased its sales staff by 40% in late fiscal 2001 and we plan to expand further in fiscal 2002 in an effort to continue increasing sales. Revenues from franchise operations were comparable in both quarterly periods decreasing slightly from $280,000 in the first quarter of fiscal 2001 to $260,000 in the first quarter of fiscal 2002. The number of franchises was similar throughout both fiscal quarters. The Company realized approximately $106,000 in net revenues generated through athlete representation and marketing fees, a new line of business entered into in January 2001. We are experimenting with representation and corporate marketing of athletes to assess whether it can be an on-going business for the Company. We feel that it is a natural extension of our overall business because of our relationships with athletes, corporations and other entities. Because of the initial success, we anticipate continuing in our efforts in these new revenue-generating areas. Costs and expenses. Cost of sales of manufacturing and wholesale products were $2.1 million in the first three months of fiscal 2002 versus $1.7 million in the same period of fiscal 2001. As a percentage of manufacturing and wholesale revenues, cost of sales was 63.8% in the fiscal 2002 quarter and was comparable to 62.1% in the fiscal 2001 quarter. Selling, general and operating expenses ("S,G&A") increased 10.8% from $1.0 million in the first quarter of fiscal 2001 (35.3% of total revenue) to $1.2 million in the same period of fiscal 2002 (32.7% of total revenue). The improvement in S,G&A expenses as a percentage of total revenues is due to an increase in the Company's revenues, as a large portion of S,G&A expenses are fixed in nature. Depreciation and amortization decreased from $70,000 in the first quarter of fiscal 2001 to $15,000 in the first three months of fiscal 2002. The decrease is due to the adoption of FAS 142 which no longer requires the amortization of goodwill. Therefore, annual and quarterly amortization of goodwill of $140,000 and $35,000, respectively, is no longer recognized. Interest expense, net. Net interest expense decreased 53.0% from $132,000 in fiscal first quarter 2001 to $62,000 in the same period in fiscal 2002, due primarily to the elimination of a $3.0 million note payable in October 2000 which had monthly interest of $35,000. Provision for income taxes. At June 30, 2001, the Company had available federal net operating loss carry-forwards of approximately $2.8 million, which expire in various years beginning in 2009 through 2018. A valuation allowance was provided for the full amount of federal taxes as of the end of both first quarter periods of fiscal 2001 and fiscal 2002. However, a provision for state income taxes was provided for in both quarterly periods of fiscal 2001 and fiscal 2002 for applicable taxes. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2001, the Company's cash and cash equivalents were $288,000 compared to $190,000 at March 31, 2001. Net accounts receivable at June 30, 2001 were $2.2 million compared to $1.9 million at March 31, 2001. Cash used by operations amounted to $1.1 million for the first quarter of fiscal 2002, compared to cash provided by operations of $48,000 in the same period of fiscal 2001. The difference is the result of the Company reducing payables during the current quarter of approximately $500,000 and an approximate $600,000 increase in inventories due to a July 2001 collectibles show hosted by the Company. The net borrowings against our line of credit, which is classified in the financing section of the Statement of Cash Flows, was $1.3 million during the first quarter of fiscal 2002. Outstanding borrowings against our line of credit were $3.2 million at June 30, 2001. The line of credit is used for working capital purposes. As of July 31, 2001, the Company's availability under the line of credit was approximately $650,000. The Company presently does not operate or own any Field of Dreams/R/ units. We plan to sell franchised units to prospective and current third-party franchisees in fiscal 2002 and beyond. There are no material 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, taking into account the availability under the line of credit is sufficient to meet its cash needs on both a short-term and long-term basis. There are no 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 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds In May 2001, the Company issued 400,000 shares of its common stock to an unrelated entity in connection with the design of software. The shares were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-B None (b) Reports on Form 8-K None SIGNATURE In accordance with the Exchange Act, the Registrant has caused this report to be signed on behalf of the Registrant by the undersigned in the capacities indicated, thereunto duly authorized on August 14, 2001. DREAMS, INC. /s/ Mark Viner ------------------------------------ Mark Viner, Chief Financial Officer, Principal Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----