UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(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, 2011
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 001-33405
DREAMS, INC.
(Exact name of registrant as specified in its charter)
Utah | 87-0368170 | |
State or other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) |
2 South University Drive, Suite 325, Plantation, Florida 33324
(Address of principal executive offices)
Registrants 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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of August 1, 2011 there were 44,632,987 shares outstanding of the registrants Common Stock.
DREAMS, INC.
PAGE | ||||||
Part I. |
Financial Information | 1 | ||||
Item 1. |
Financial Statements (Unaudited) | 1 | ||||
Condensed Consolidated Balance Sheets | 1 | |||||
Condensed Consolidated Statements of Operations | 2 | |||||
Condensed Consolidated Statements of Cash Flows | 3 | |||||
Notes to Condensed Consolidated Financial Statements | 4 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||||
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 22 | ||||
Item 4. |
Controls and Procedures | 22 | ||||
Part II. |
Other Information | 23 | ||||
Item 1. |
Legal Proceedings | 23 | ||||
Item 1A. |
Risk Factors | 23 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 23 | ||||
Item 3. |
Defaults upon Senior Securities | 23 | ||||
Item 4. |
(Removed and Reserved) | 23 | ||||
Item 5. |
Other Information | 23 | ||||
Item 6. |
Exhibits | 23 |
Item 1. | Financial Statements. |
Condensed Consolidated Balance Sheets
June 30, 2011 |
December 31, 2010 |
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(Dollars in Thousands, except share amounts) | (un-audited) | |||||||
ASSETS | ||||||||
Current assets: |
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Cash |
$ | 314 | $ | 440 | ||||
Accounts receivable, net |
3,815 | 9,898 | ||||||
Note receivable, current |
47 | | ||||||
Inventories |
35,146 | 32,609 | ||||||
Prepaid expenses and deposits |
2,315 | 2,166 | ||||||
Deferred tax asset |
1,243 | 1,340 | ||||||
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Total current assets |
$ | 42,880 | $ | 46,453 | ||||
Property and equipment, net |
5,793 | 5,538 | ||||||
Deferred loan costs |
186 | 234 | ||||||
Note Receivable |
243 | | ||||||
Other intangible assets, net |
5,936 | 5,821 | ||||||
Goodwill, net |
8,650 | 8,650 | ||||||
Other assets |
9 | 9 | ||||||
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Total assets |
$ | 63,697 | $ | 66,705 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
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Accounts payable |
$ | 5,990 | $ | 14,477 | ||||
Accrued liabilities |
3,496 | 9,264 | ||||||
Current portion of long-term debt |
275 | 323 | ||||||
Borrowings against line of credit |
18,564 | 1,128 | ||||||
Deferred credits |
383 | 1,622 | ||||||
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Total current liabilities |
$ | 28,708 | $ | 26,814 | ||||
Long-term debt, less current portion |
1,468 | 1,694 | ||||||
Capital lease obligation |
128 | 168 | ||||||
Long-term deferred tax liability |
886 | 2,887 | ||||||
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Total Liabilities |
$ | 31,190 | $ | 31,563 | ||||
Stockholders equity: |
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Preferred stock authorized 10,000,000, issued and outstanding -0- shares |
| | ||||||
Common stock and additional paid-in capital, no par value; authorized 100,000,000 shares; shares issued and outstanding 44,632,987 and 44,107,464 shares as of June 30, 2011 and December 31, 2010, respectively |
44,105 | 43,814 | ||||||
Treasury stock 38,400 issued as of June 30, 2011 and December 31, 2010 |
(46 | ) | (46 | ) | ||||
Accumulated deficit |
(11,442 | ) | (8,588 | ) | ||||
Non-controlling interest in subsidiaries |
(110 | ) | (38 | ) | ||||
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Total stockholders equity |
32,507 | 35,142 | ||||||
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Total liabilities and stockholders equity |
$ | 63,697 | $ | 66,705 | ||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
1
Condensed Consolidated Statements of Operations - Unaudited
(Dollars in Thousands, except share amounts and earnings per share amounts)
Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
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Manufacturing/Distribution |
$ | 5,131 | $ | 4,661 | $ | 1,849 | $ | 1,819 | ||||||||
Retail |
36,966 | 25,966 | 16,741 | 12,455 | ||||||||||||
Other - Fees |
80 | 283 | 53 | 92 | ||||||||||||
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Total Revenues |
$ | 42,177 | $ | 30, 910 | $ | 18,643 | $ | 14,366 | ||||||||
Expenses: |
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Cost of sales-mfg/distribution |
$ | 2,962 | $ | 2,740 | $ | 1,076 | $ | 1,022 | ||||||||
Cost of sales-retail |
20,196 | 14,136 | 9,213 | 6,801 | ||||||||||||
Operating expenses |
22,289 | 15,777 | 10,254 | 7,641 | ||||||||||||
Depreciation and amortization |
1,312 | 900 | 674 | 451 | ||||||||||||
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Total Expenses |
$ | 46,759 | $ | 33,553 | $ | 21,217 | $ | 15,915 | ||||||||
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(Loss) from operations |
(4,582 | ) | (2,643 | ) | (2,574 | ) | (1,549 | ) | ||||||||
Interest (expense), net |
(322 | ) | (759 | ) | (198 | ) | (414 | ) | ||||||||
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(Loss) before income taxes |
(4,904 | ) | (3,402 | ) | (2,772 | ) | (1,963 | ) | ||||||||
Other income |
71 | | 71 | | ||||||||||||
Provision for income tax benefit |
1,907 | 1,362 | 1,049 | 785 | ||||||||||||
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Net (loss) |
$ | (2,926 | ) | $ | (2,040 | ) | $ | (1,652 | ) | $ | (1,178 | ) | ||||
Loss attributable to non controlling interest |
72 | | 44 | | ||||||||||||
Net (loss) attributable to Dreams, Inc |
$ | (2,854 | ) | $ | (2,040 | ) | $ | (1,608 | ) | $ | (1,178 | ) | ||||
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(Loss) per share: |
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Basic: (Loss) per share |
$ | (0.06 | ) | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||
Weighted average shares outstanding Basic |
44,563,624 | 37,955,943 | 44,632,604 | 38,267,107 | ||||||||||||
Diluted: (Loss) per share |
$ | (0.06 | ) | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||
Weighted average shares outstanding Diluted |
45,107,886 | 38,901,624 | 45,088,132 | 39,178,628 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
2
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2011 and June 30, 2010 (unaudited)
(Dollars in Thousands) | 6 month ended June 30, 2011 |
6 months ended June 30, 2010 |
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Cash Flows from Operating Activities |
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Net (Loss) |
$ | (2,854 | ) | $ | (2,040 | ) | ||
Non controlling interest |
(72 | ) | | |||||
Adjustments to reconcile net (loss) to net cash used in operating activities: |
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Depreciation |
1,030 | 828 | ||||||
Amortization |
285 | 72 | ||||||
Loan cost amortization |
56 | 206 | ||||||
Net loss from sale of property and equipment |
20 | | ||||||
Warrants issued for services |
| 40 | ||||||
Stock based compensation |
20 | | ||||||
Deferred tax benefit, net |
(1,904 | ) | (1,362 | ) | ||||
(Increase) decrease in: |
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Accounts receivable |
6,083 | 2,829 | ||||||
Inventories |
(2,537 | ) | (1,988 | ) | ||||
Prepaid expenses and deposits |
(475 | ) | (69 | ) | ||||
Increase (decrease) in: |
||||||||
Accounts payable |
(8,487 | ) | (5,224 | ) | ||||
Accrued liabilities |
(5,768 | ) | (1,505 | ) | ||||
Deferred revenues |
(1,239 | ) | (740 | ) | ||||
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Net cash (used in) operating activities |
(15,842 | ) | (8,953 | ) | ||||
Cash Flows from Investing Activities |
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Purchase of intangibles |
(200 | ) | | |||||
Purchase of property and equipment |
(1245 | ) | (607 | ) | ||||
Proceeds received from note receivable |
38 | | ||||||
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Net cash (used in) investing activities |
(1,407 | ) | (607 | ) | ||||
Cash Flows from Financing Activities |
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Proceeds from Line of Credit |
65,898 | 42,559 | ||||||
Pay down on Line of Credit |
(48,723 | ) | (34,008 | ) | ||||
Deferred loan costs |
(8 | ) | (338 | ) | ||||
Proceeds from stock option exercise |
271 | 54 | ||||||
Proceeds from stock & warrant issuance |
| 2,000 | ||||||
Repayment of Capital lease |
(41 | ) | (26 | ) | ||||
Repayment of Notes payable |
(274 | ) | (755 | ) | ||||
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Net cash provided by financing activities |
17,123 | 9,486 | ||||||
Net (decrease) increase in cash |
(126 | ) | (74 | ) | ||||
Cash at beginning of period |
440 | 582 | ||||||
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Cash at end of period |
$ | 314 | $ | 508 | ||||
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Cash paid for interest during the period |
$ | 67 | $ | 419 | ||||
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Cash paid for taxes during the period |
$ | 367 | $ | | ||||
Supplemental Disclosure of Non Cash Financing Activity |
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Borrowings on Capital Lease |
| 50 | ||||||
Advances to athlete client converted to note receivable |
328 | | ||||||
Intangibles purchased through notes payable |
200 | | ||||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
3
Notes to Condensed Consolidated Financial Statements - Unaudited
Dollars in Thousands, Except per Share Amounts
1. | Managements Representations |
The condensed consolidated interim financial statements included herein have been prepared by Dreams, Inc. (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 Companys Annual Report on Form 10-K, for the calendar year ended December 31, 2010, filed with the SEC on March 30, 2011.
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 FASB Accounting Standards Codification, ASC Topic 270 Interim Reporting and reflect, in managements opinion, all adjustments, which are of a normal recurring nature, necessary to summarize fairly the financial position and results of operations for such periods. Due to the seasonality of our business, the results of operations for such interim periods are not necessarily indicative of the results expected for future quarters or the full calendar year.
2. | Description of Business and Summary of Significant Accounting Policies |
Description of Business
Dreams, Inc. and its subsidiaries (collectively the Company) are principally engaged in the manufacturing, distribution and retailing of licensed sports products, sports & celebrity memorabilia and acrylic display cases through multiple distribution channels; including internet, brick & mortar, catalogue, kiosks, and trade shows. The Company is also in the business of athlete representation and corporate marketing of individual athletes. The Companys customers are located throughout North America.
Principals of Consolidation
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.
Earnings per Share
For the six months ended June 30, 2011, weighted average shares outstanding for basic earnings per share purposes was 44,563,624. For the six months ended June 30, 2011, weighted average shares outstanding for diluted earnings per share purposes was 45,107,886. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period.
For the six months ended June 30, 2010, weighted average shares outstanding for basic earnings per share purposes was 37,955,943. For the six months ended June 30, 2010, weighted average shares outstanding for diluted earnings per share purposes was 38,901,624. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period.
For the three months ended June 30, 2011, weighted average shares outstanding for basic earnings per share purposes was 44,632,604. For the three months ended June 30, 2011, weighted average shares outstanding for diluted earnings per share purposes was 45,088,132. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period.
For the three months ended June 30, 2010, weighted average shares outstanding for basic earnings per share purposes was 38,267,107. For the three months ended June 30, 2010, weighted average shares outstanding for diluted earnings per share purposes was 39,178,628. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period.
4
Stock Compensation
Effective April 1, 2006, the Company adopted the provisions of, and accounted for stock-based compensation in accordance with FASB Accounting Standards Codification, Topic 718 Compensation Stock Compensation. Under the fair value recognition provisions of Topic 718, stock-based compensation cost is measured at the grant date based on the fair value of the award over the requisite service period, which is the vesting period. The Company elected the modified-prospective method of adoption, under which prior periods are not revised for comparative purposes. The Company has elected the graded-vesting attribution method for recognizing stock-based compensation expense over the requisite service period for each separately vesting tranche of awards as though the awards were, in substance, multiple awards. The valuation provisions of Topic 718 apply to new grants and to grants that were outstanding as of the effective date and are subsequently modified.
For the six months ended June 30, 2011 and June 30, 2010, the Company recorded $20 and $0 of pre-tax share-based compensation expense under Topic 718, recorded in selling and administrative expense in the Condensed Consolidated Statement of Operations, respectively. This expense was offset by approximately a $8 and $0 in a deferred tax benefit for non-qualified share-based compensation, respectively.
Share-Based Compensation Awards
The following disclosure provides information regarding the Companys share-based compensation awards, all of which are classified as equity awards in accordance with FASB Accounting Standards Codification, Topic 718 Compensation Stock Compensation:
Stock Options - The Company grants stock options to employees that allow them to purchase shares of the Companys common stock. Options are also granted to outside members of the Board of Directors of the Company as well as independent contractors. The Company determines the fair value of stock options at the date of grant using the Black-Scholes valuation model. Options generally vest immediately, however, the Company has granted options that vest over three to five years. Awards generally expire three to five years after the date of grant.
As of June 30, 2011, vested options totaled 587,661 with an average price of $.67. Unvested options totaled 278,000. Total outstanding options that were in the money at June 30, 2011 were 865,661 with an average price per option of $1.21. Of those options, the vested in the money options totaled 587,661 with an average price of $.67 and the in the money unvested options totaled 278,000.
During the six months ended June 30, 2011; there were 360,001 options granted, 46,746 options expired, no options cancelled, and 525,523 options exercised.
The following table summarizes the stock option activity from January 1, 2011, through June 30, 2011:
Options | Exercisable Price | Weighted Av. Exercise Price | ||||||||
January 1, 2011 |
1,077,929 | |||||||||
Granted |
360,001 | $ .60 - 2.35 | $ | 2.29 | ||||||
Expired |
(46,746 | ) | .41 - 2.75 | 1.21 | ||||||
Cancelled |
| | | |||||||
Exercised |
(525,523 | ) | $ .41 - .60 | $ | .55 | |||||
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June 30, 2011 |
865,661 | $ .41 - 2.75 | $ | 1.21 |
5
The following table breaks down the number of outstanding options with their corresponding contractual life as well as the exerciseable weighted average (WA), outstanding exercise price, number of vested options with the corresponding exercise price by price range.
Options Breakdown by Range at 6/30/2011
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Outstanding | Exerciseable | ||||||||||||||||||
Range |
Outstanding Options |
Remaining Contractual Life |
WA Outstanding Exercise Price |
Vested Options |
WA Vested Exercise Price |
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$0.41 to $1.19 |
518,661 | 1.0 | $ | .45 | 518,661 | $ | .45 | |||||||||||||
$1.20 to $2.75 |
347,000 | 4.8 | $ | 2.35 | 69,000 | $ | 2.35 | |||||||||||||
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$.41 to $2.75 |
865,661 | 2.5 | $ | 1.21 | 587,661 | $ | .67 |
At June 30, 2011, exercisable options had aggregate intrinsic values of $1,219.
Income Taxes
Effective January 1, 2007, the Company adopted the provisions of FASB Accounting Standards Codification Topic 740-10-65, Accounting for Uncertainty in Income Taxes. The Interpretation provides clarification on accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with Accounting for Income Taxes. The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Companys evaluation, no significant income tax uncertainties were identified.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial statements include: the determination of the lower of cost or market adjustment for inventory; sales returns; the allowance for doubtful accounts; the recoverability of long-lived and intangible assets; the determination of deferred income taxes, including related valuation allowances; the accrual for actual, pending or threatened litigation, claims and assessments; and assumptions related to the determination of stock-based compensation
In an on-going basis, the Company reviews its outstanding customer receivables for collectability. Adjustments to the allowance account are made according to current knowledge. Additionally, management reviews the composition of its inventory no less than annually. Reserves are adjusted accordingly. On a quarterly basis, the Company also evaluates its ability to realize its deferred tax assets and whether or not a valuation allowance is necessary.
The Company has both Goodwill and other long-lived intangible assets which are not amortized. As prescribed by the FASB, the Company evaluates the carrying value of these assets for impairment. Significant economic changes may require the Company to recognize impairment. As of June 30, 2011, no impairment has been necessary.
6
3. | Business Segment Information |
The Company has two reportable segments as identified by information reviewed by the Companys chief operating decision makers (CODM), our CEO and SVP Finance. The divisions whose customers are resellers of our goods have their results reflected in the manufacturing/distribution segment. The retail segment is made up of many locations for our inventory. Revenues are achieved by moving inventory through our sales channels to reach and expand our customer base. These channels include the Internet, stores and our catalogues. Hence, customers who are the end users of our goods have their results reflected in our retail segment.
The Manufacturing/Distribution segment represents the manufacturing and wholesaling of sports memorabilia products and acrylic display cases. Sales are handled primarily through in-house salespersons that sell to specialty retailers and other distributors in the United States. The Companys manufacturing and distributing facilities are located in the United States. The majority of the Companys products are manufactured in these facilities.
The Retail Operations segment is multi-channel and features numerous Internet sites, catalogues, stadium and some traditional brick and mortar stores:
All of the Companys revenue generated during the six and three months ended June 30, 2011 and June 30, 2010, was derived in the United States and all of the Companys assets are located in the United States.
Summarized financial information concerning the Companys 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 six and three month periods ended June 30, 2011 and June 30, 2010 was as follows:
Six Months Ended: |
Manufacturing/ Distribution |
Retail Operations |
Total | |||||||||
June 30, 2011 |
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Net sales |
$ | 7,175 | $ | 36,966 | $ | 44,141 | ||||||
Intersegment net sales |
(2,044 | ) | | (2,044 | ) | |||||||
Operating (loss) |
(759 | ) | (1,708 | ) | (2,467 | ) | ||||||
Total assets |
$ | 19,019 | 41,253 | 60,271 | ||||||||
June 30, 2010 |
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Net sales |
$ | 6,208 | $ | 25,966 | $ | 32,174 | ||||||
Intersegment net sales |
(1,547 | ) | | (1,547 | ) | |||||||
Operating (loss) |
(444 | ) | (689 | ) | (1,133 | ) | ||||||
Total assets |
$ | 18,459 | $ | 30,828 | $ | 49,287 |
7
Reconciliation to consolidated amounts is as follows:
Six-Months Ended | ||||||||
6/30/11 | 6/30/10 | |||||||
Revenues: |
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Total revenues for reportable segment |
$ | 44,141 | $ | 32,174 | ||||
Other revenues |
80 | 283 | ||||||
Eliminations of intersegment |
(2,044 | ) | (1,547 | ) | ||||
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Total consolidated revenues |
$ | 42,177 | $ | 30,910 | ||||
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Pre-tax (loss): |
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Total operating (loss) for reportable segments |
$ | (2,467 | ) | $ | (1,133 | ) | ||
Other (loss)* |
(2,115 | ) | (1,510 | ) | ||||
Less: Interest expense |
322 | 759 | ||||||
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Total consolidated (loss) before taxes |
$ | (4,904 | ) | $ | (3,402 | ) | ||
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Three Months Ended: |
Manufacturing/ Distribution |
Retail Operations |
Total | |||||||||
June 30, 2011 |
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Net sales |
$ | 2,679 | $ | 16,741 | $ | 19,420 | ||||||
Intersegment net sales |
(830 | ) | | (830 | ) | |||||||
Operating (loss) |
(592 | ) | (1,166 | ) | (1,758 | ) | ||||||
Total assets |
$ | 19,019 | $ | 41,253 | $ | 60,271 | ||||||
June 30, 2010 |
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Net sales |
$ | 2,648 | $ | 12,455 | $ | 15,103 | ||||||
Intersegment net sales |
(829 | ) | | (829 | ) | |||||||
Operating (loss) |
(358 | ) | (332 | ) | (690 | ) | ||||||
Total assets |
$ | 18,459 | $ | 30,828 | $ | 49,287 |
Reconciliation to consolidated amounts is as follows:
Three-Months Ended | ||||||||
6/30/11 | 6/30/10 | |||||||
Revenues: |
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Total revenues for reportable segment |
$ | 19,420 | $ | 15,103 | ||||
Other revenues |
53 | 92 | ||||||
Eliminations of intersegment |
(830 | ) | (829 | ) | ||||
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Total consolidated revenues |
$ | 18,643 | $ | 14,366 | ||||
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Pre-tax (loss): |
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Total operating (loss) for reportable segments |
(1,758 | ) | (690 | ) | ||||
Other (loss)* |
(816 | ) | (859 | ) | ||||
Less: Interest expense |
198 | 414 | ||||||
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Total consolidated (loss) before taxes |
$ | (2,772 | ) | $ | (1,963 | ) | ||
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* | These are unallocated costs and expenses that have not been allocated to the reportable segments. Some examples of these unallocated overhead costs which are consistent with the Companys internal accounting policies are executive salaries and benefits; corporate office occupancy costs; professional fees, bank charges; certain insurance policy premiums, public relations/investor relations expenses. |
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4. | Note Receivable |
On April 1, 2011 the Company converted advances totaling $328 to an athlete client into a note receivable maturing on December 31, 2013. The terms of the note call for repayments of $84 through December 31, 2011 and $122 in years two and three. These amounts can be repaid in the form of services, receipt of autographed products and player appearances. At June 30, 2011 the current portion of the note receivable balance was $47 and the long-term portion was $243
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5. | Inventories |
The components of inventories are as follows:
June 30, 2011 |
December 31, 2010 |
|||||||
Raw materials |
$ | 396 | $ | 397 | ||||
Work in process |
86 | 66 | ||||||
Finished goods, net |
34,664 | 32,146 | ||||||
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|
|
|||||
Total |
$ | 35,146 | $ | 32,609 | ||||
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|
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6. | Goodwill and Unamortized Intangible Assets |
In accordance with FASB Accounting Standards Codification Topic 350-20-35 Intangibles Goodwill and Other > Goodwill > Subsequent Measurement, the Company evaluates the carrying value of goodwill as of December 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of the reporting units goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair value. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds it implied fair value.
The Companys evaluations of the carrying amount of goodwill were completed as of December 31, 2010 and resulted in no impairment losses. There has been no subsequent event that resulted in evaluation adjustments as of June 30, 2011.
7. | Acquisitions |
Upon the closing of an acquisition, management estimates the fair values of assets and liabilities, acquired and consolidates the acquisition as quickly as possible. However, it routinely takes time to obtain all of the pertinent information to finalize the acquired companys balance sheet and supporting schedules and to adjust the acquired companys accounting policies, procedures, books and records to the Companys standards. As a result, it may take several quarters before the Company is able to finalize those initial fair value estimates. Accordingly, it is not uncommon for initial estimates to be subsequently revised.
On April 18, 2011, the Company through its 51% owned subsidiary, executed an Asset Purchase Agreement (APA) to acquire the trademarks and web domain of the Zubaz brand name. The total purchase price stated in the APA was $400, of which $200 was paid upon execution and the remainder shall be paid on January 6, 2012. The Company is the guarantor for the remaining balance to be paid on behalf of the subsidiary. The unpaid balance of $200 is included in accrued expenses at June 30, 2011.
Management has determined the value of the trademarks to be $300 and the value of the domain name to be $100. The domain name was estimated to have a useful life of five years.
8. | Commitments and Contingencies |
The Company has certain contracts with several athletes which will require the Company to make minimum payments to these athletes over the next two years. The payments are in exchange for autographs and licensing rights on inventory items to be received in the future.
The Company leases its corporate offices, manufacturing, warehouse and distribution facilities along with its company-owned stores under operating leases with varying terms and lengths. Rent expense under these leases for the six and three months ended June 30, 2011 and June 30, 2010 were $2,627, $2,342 and $1,359, $1,157, respectively.
The Company leases certain computer and warehouse equipment under capital leases. The leases collectively require monthly payments of $8 and expire through 2014. Interest rates on the capital leases range from 3% to 10%.
10
The Company was a named party in a breach of contract suit brought by a former landlord. The Company believes the claim is without merit and has defended itself vigorously. The parties are scheduled to go to trial in October 2011. No outcome can be determined at this time.
9. | New Accounting Pronouncements |
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements.
10. | Line of Credit |
Effective July 7, 2011, the Company executed a Second Amendment to its Loan and Security Agreement with its senior lender, Regions Bank. As a result, the Company filed a form 8-K on Monday, July 11, 2011 whereby it disclosed that its credit facility was increased immediately to $25,000, with the facility increasing to $27,500 for the months October thru December. In addition, the interest rate was reduced from libor plus a 3.00% margin, to libor plus a 2.50% margin.
By way of background, on July 23, 2010, the Company successfully re-financed its senior debt with Comerica Bank as a result of a newly issued $20,000 senior secured credit facility provided by Regions Bank. At closing, $11,200 from the new line of credit was used to pay-off the outstanding balance with Comerica Bank. The interest rates on outstanding loan balances were reduced from 6.5% from the previous lender, to libor plus a 3.00% margin, or 3.34% for the new line of credit. The advance rates on the credit facility are 80% for eligible accounts receivable and 50% for eligible inventory for January, February and March; 55% for eligible inventory for April and May; and 60% for eligible inventory for June through December. The new 3-year loan and security agreement is secured by all of the assets of the Company and its divisions. The Regions credit facility requires that certain performance financial covenants be met on a monthly and or quarterly and or yearly basis. These financial covenants consist of a Fixed Charge Coverage Ratio and a Funded Debt to EBITDA Ratio.
The F.C.C. Ratio is defined as EBITDA, plus Rent Expense, minus all unfinanced Capital Expenditures, plus taxes paid, and any restricted payments made (over a rolling 12 month period ending in the current quarter). This amount is then divided by Interest Expense, Rent expense, and the current maturities of funded debt (over a rolling 12 month period ending in the current quarter). For the quarter ended June 30, 2011, the Company was not subjected to a minimum ratio.
The Funded Debt to EBITDA ratio includes: debt for borrowed funds, subordinated debts, the principal component of all capital leases, any deferred payment by one year or more, and all other debt instruments (other than checks drawn in the ordinary course of business), divided by EBITDA. For the quarter ended June 30, 2011, the required ratio needs to be less than 4.00 to 1.00. The actual ratio was 3.80 to 1.00.
11. | Non-Controlling Interest |
Non-controlling interest represents the portion of equity that we do not own in the entity that we consolidate. We account for and report our non-controlling interest in accordance with the provisions under the Consolidation Topic of the FASB ASC 810. The Company has a 51% equity interest in The Comet Clothing Company, LLC, hence a 49% non-controlling interest. The Company has a controlling interest because of its management of The Comet Clothing Company, LLC.
As a result of our Asset Purchase Agreement with Pro-Stars, Inc. effective December 26, 2006, Dreams received 86.5% of the Caesars Forum Shops Field of Dreams store; 89% of the Rio Hotel Field of Dreams store; 90.5% of the Smith & Wollensky Field of Dreams store; and 88.125% of the marketing venture known as Stars Live 365. The Company records all of the revenues generated from these operations and then records a minority interest expense representing the limited partners earned pro-rata share of the actual profits. Dreams will have an on-going obligation to make quarterly distributions on a pro-rata basis depending on the actual profitability of each of the three stores and Stars Live 365.
12. | Subsequent Events |
In preparing the interim consolidated financial statements, the Company has evaluated, for the potential recognition or disclosure, events or transactions subsequent to the end of the most recent quarterly period through the date of issuance of the financial statements. As discussed in Note 10, on July 7, 2011, the Company amended its credit facility with Regions Bank.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q under Managements 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 statements are indicated by words or phrases such as anticipates, projects, management believes, Dreams believes, intends, expects, and similar words or phrases. Such factors include, among others, the following: competition; seasonality; success of operating initiatives; new product development and introduction schedules; acceptance of new product offerings; advertising and promotional efforts; adverse publicity; changes in business strategy or development plans; availability and terms of capital including the continuing availability of our credit facility with Regions Bank or a similar facility with another financial institution; labor and employee benefit costs; changes in government regulations; and other factors particular to the Company.
Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance, or achievements of Dreams may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements attributable to Dreams or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Dreams disclaims any obligation to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
Managements Overview
Dreams, Inc., headquartered in Plantation, Florida, is a Utah Corporation formed on April 9, 1980, since our formation we have evolved into a technology driven, vertically integrated, multi-channel retailer focused on the sports licensed products industry. This has previously been accomplished, in part, via organic growth and strategic acquisitions. We believe our senior management and corporate infrastructure is well suited to acquire both large and small industry competitors, especially online.
Specifically, we are engaged in multiple aspects of the licensed sports products and autographed memorabilia industry through a variety of distribution channels.
We generate revenues principally from:
| Our e-commerce component featuring www.FansEdge.com and others; (reported in retail segment) |
| Our web syndication sites; (reported in retail segment) |
| Our ten (10) company-owned FansEdge stores; (reported in retail segment) |
| Our five (5) company-owned Field of Dreams stores; (reported in retail segment) |
| Our catalogues; (reported in retail segment) |
| Our running of game-day/stadium operations; (reported in retail segment) |
| Our manufacturing/distribution of sports memorabilia products, custom acrylic display cases and framing; (reported in mfg/wholesale segment) |
| Our running of sports memorabilia /collectible trade shows; (reported in mfg/wholesale segment) |
| Our franchise program through the four (4) Field of Dreams franchise stores presently operating*; (reported in other income) and |
| Our representation and corporate marketing of individual athletes* (reported in other income). |
* | revenues not material to the overall consolidated results. |
Organic Growth (dollar amounts in thousands)
Key components of our organic growth strategy include building brand recognition; improving sales conversion rates both on our web sites and in our stores; continuing our execution of multi-channel retailing under our flagship brand, FansEdge; aggressively marketing our web syndication services, exploring additional distribution channels for our products; and cross pollinating corporate assets among our various operating divisions. Management believes that there remain significant benefits to cross pollinating the various corporate assets and leveraging the vertically integrated model that has been constructed over the years.
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In particular, we have had success with the marketing of our products on-line via FansEdge.com and the complement of each of our web properties. The Companys sales associated with these e-commerce initiatives have grown from $4,000 in 2004 to $84,728 in 2010, placing us at number 181ranking of the largest Internet retailers in the nation.
For the six and three months ended June 30, 2011, our online sales grew 46.4% to $29,661 and 39.2% to $12,873, respectively over the same six and three month periods in 2010. This remains the fastest growing area of the Company and will remain its primary focus. This Internet growth has re-defined our Company as we have completed a transformation to a technology company, operating in the sports licensed products industry, generating a majority of our revenues via the eCommerce channel.
The Company has drawn on a complete spectrum of competencies it has developed over the years to support its flagship online brand, FansEdge. This has allowed the Company to leverage the investments made during the past several years by marketing a proven range of services to third parties that include; managed hosting, custom site design and development, customer service, order fulfillment, purchasing, inventory management, marketing, merchandising, and analytics and reporting. The Company calls the compilation of e-commerce services described above, Web Syndication and believes there are significant growth opportunities that exist in the marketplace. Our current web syndication portfolio consists of some of the best known brands and properties in the country, including JC Penney, the Chicago Bulls, Majestic Athletic, NBC Sports and the Philadelphia Eagles, to name a few.
With the continued growth of our Web Syndication business model, we are leveraging the Companys investment in its broad inventory by adding additional distribution channels for our products through our partners sites. This concurrent marketing effort is improving our inventory turns, increasing our absorption rates, and reducing overall inventory carrying costs. Our web syndication revenues for the six months ended June 30, 2011, were up 48.3% to $10,318, with sixty-seven (67) sites contributing, versus $6,955 in web syndication revenues for the same six month period in 2010 when we ran fifty-three (53) sites. (The web syndication revenues illustrated here are included in our total Internet sales of $29,661 for the first six months of 2011.) For the three months ended June 30, 2011, our web syndication revenues were up 45.0% to $4,540, with sixty-seven (67) sites contributing, versus $3,130 for the same three month period in 2010 with fifty-three (53) sites. (The web syndication revenues illustrated here are included in our total Internet sales of $12,873 for the second quarter ended June 30, 2011.) Our organic growth online for the Company-owned brands was 45.3% for the six months ended June 30, 2011 and 36.2% for the three months ended June 30, 2011.
Commencing in June 2008, we opened (6) six FansEdge stores in the greater Chicago, IL area. (Our FansEdge store count is currently ten (10).) This was in support of our Multi-channel Retailing strategy; whereby we market a single brand via multiple channels. We are pleased with the results to date of our FansEdge brick & mortar stores. They have performed well as we believe they offer approachable price points for the consumer. They cross market with the on-line Fansedge.com site and benefit by a high-tech inter-active kiosk used in each of the FansEdge stores. Same store sales for our (6) six stores operating more than a year were up 6.0% for the first six months of 2011; and down 21.9% for the quarter ended June 30, 2011 as we were measuring up against the Chicago Blackhawks NHL Stanley Cup victory during the comparable quarter in 2010. We are continuing to enhance the merchandise offerings and make overall operational improvements to these stores. We have begun to offer this suite of Multi-channel Retailing services to third parties who are seeking to add one or more distribution channels to their retail model.
Our proprietary eCommerce platform has also enabled us to fuel a state-of-the-art interactive Kiosk for ordering products. These Kiosks are in each of our FansEdge stores and are providing a unique shopping experience for our customers by allowing them to access the entire Company portfolio of more than 200,000 product offerings. In 2010, and continuing through our first six months of 2011, we experienced a range of 10% to 20% lift in our store sales attributed to the Kiosk. The Company is exploring joint venture deals with other retailers who could benefit by adding a broader range of merchandising options to their patrons by placing our Kiosks within their store footprint or integrating our technology feed into their own hardware. In fact, on February 7, 2011, JC Penney announced that they rolled out its Findmore® smart fixture (kiosk) to over 120 select stores across the country, featuring our Sports Fan Shop.
We believe this expansion of our revenue producing footprint will serve us well as we navigate our business models and look to distinguish ourselves from our competitors.
Objective
Our overall objective is twofold: to become the premier multi-channel retailer in the team licensed products industry under our FansEdge brand; and become the leading online syndicator for sports related properties.
Analysis
We review our operations based on both our financial results and various non-financial measures. Managements focus in reviewing performance begins with growth in sales, margin integrity and operating income. On the expense side, with a majority of our sales being achieved as an on-line retailer of licensed sports products, we spend a disproportionate amount of our operating expenses in internet marketing. Therefore, we continuously monitor the return on investment of these particular expenses. Non-financial measures which management reviews include: unique visitors to our web sites, foot traffic in our stores, sales conversion rates and average sold unit prices.
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We believe the implementation of our Multi-channel Retailing strategy will strengthen our FansEdge brand in the marketplace, and that we are well positioned to capture increased activity of on-line retail purchases. Industry experts and analysts state that currently, only 7-8% of all retail sales are being conducted on-line and are anticipated to increase.
With the continued growth of our Web Syndication business model, which grew from 50 clients in 2009, to 67 currently and revenues from syndication growing from $3,000 in 2008 to over $34,000 in 2010 and 2011 projected to be considerably higher, we are leveraging the Companys investment in its broad inventory by offering the items to multiple sites simultaneously. This should improve our inventory turnover, increase our absorption rates and reduce inventory carrying costs.
On the mChannel front, we plan to continue to invest in various initiatives to leverage mobile opportunities to acquire customers online and offline, conduct mobile commerce, enhance the in-store experience and connect with our customers even when they are not shopping. Currently, our e-commerce platform is mobile capable and with revenues transacted from mobile devices growing exponentially, this will become a more material part of our overall revenue stream. Towards the beginning of our fourth quarter 2011, we plan on releasing an enhanced mobile e-commerce experience that is fully optimized for intuitive shopping via a mobile device. Additionally, we plan to continue to expand our various mobile oriented marketing programs that we use to acquire new customers and stimulate repeat purchasing from existing programs. Currently, we use programs such as local search, text alerts and other mobile oriented promotions. We also plan to use mobile to enhance our in-store experience such as using QR codes to allow in-store shoppers to access customer reviews, quickly see what other teams we have available in a particular style and to quickly see what sizes we might have online that we may not have in the store.
With the continued growth of our Web Syndication portfolio, we are leveraging the Companys investment in its broad inventory by offering the items to multiple sites simultaneously. This should improve our inventory turnover, increase our absorption rates and reduce inventory carrying costs. We believe there is significant opportunity in the marketplace to grow this model. However, with the success we are experiencing with our web syndication model, we will be seeking a more quality client and have and may continue to not-renew smaller accounts. Nevertheless, we were pleased to sign the MLS franchise Chicago Fire and the NBA franchises Charlotte Bobcats and Golden State Warriors, along with Purdue University during the first six months of 2011.
Towards the end of 2010, we acquired a 51% ownership stake in The Comet Clothing Company, LLC. This entity owns the rights to the Zubaz® brand, a line of casual sportswear with unique designs. Also, we consummated a purchase agreement for certain assets previously owned by Collegiate Marketing Services (CMS). The principal asset is the retail contract with the University of Texas for the management of both the official online store and all campus event sales. Both of these initiatives were strategic in nature for the Company. We have now added the ability to manufacture soft goods (apparel) within the organization and will seek to produce some of the items that will be featured on many of our online shops and our partners eCommerce sites. This should improve our overall gross margins. In addition, with our team providing game-day/stadium sales for the University of Texas, and effective March 26, 2011 for the Chicago Fire, we are able to deliver a comprehensive retail solution to current and prospective clients that are looking for a provider who excels at eCommerce and in-stadium operations and merchandising.
In March of 2011, the NFL instituted a lock-out of its players while the two sides sought to come to terms with a new collective bargaining agreement. On July 25, 2011, the two sides announced a new 10-year deal and the lock-out was lifted. Despite the lock-out, the Company was able to grow its NFL related product sales by 10% for the quarter ended June 30, 2011, versus the same quarter in 2010.
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Historically, the fourth quarter of the fiscal year (October to December) has accounted for a greater proportion of our operating income than have each of the other three quarters of our fiscal year. This is primarily due to increased activities as a result of the holiday season. We expect that we will continue to experience quarterly variations and operating results principally as a result of the seasonal nature of our industry. Management continues to seek ways to shift expenses from the non-holiday quarters to the busier holiday quarter in order to improve cash flow. Other factors also cause a significant fluctuation of our quarterly results, including the timing of special events, the general popularity of a specific team that plays in a championship or an individual athlete who enters their respective sports Hall of Fame, the amount and timing of new sales contributed by new web syndication accounts, new stores, the timing of personal appearances by particular athletes and general economic conditions. Additional factors may cause fluctuations in expenses, including the costs associated with the opening of new stores, the integration of acquired businesses and stores into our operations , the general health of the economy, and corporate expenses needed to support our expansion and growth strategy.
Conclusion
We set ourselves apart from other companies with our diversified product and services line, our proprietary e-commerce platform, our plethora of sports leagues and celebrity licenses, as well as our relationships with sports leagues, agents and athletes. Management believes we can continue to capture market share, especially on-line.
GENERAL
As used in this Form 10-Q we, our, us, the Company and Dreams refer to Dreams, Inc. and its subsidiaries unless the context requires otherwise.
Use of Estimates and Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial statements include: the determination of the lower of cost or market adjustment for inventory; sales returns; the allowance for doubtful accounts; the recoverability of long-lived and intangible assets; the determination of deferred income taxes, including related valuation allowances; the accrual for actual, pending or threatened litigation, claims and assessments; and assumptions related to the determination of stock-based compensation.
In an on-going basis, the Company reviews its outstanding customer receivables for collectability. Adjustments to the allowance account are made according to current knowledge. Additionally, management reviews the composition of its inventory no less than annually. Reserves are adjusted accordingly. On a quarterly basis, the Company also evaluates its ability to realize its deferred tax assets and whether or not a valuation allowance is necessary.
The Company has both Goodwill and other long-lived intangible assets which are not amortized. As prescribed by the FASB, the Company evaluates the carrying value of these assets for impairment. Significant economic changes may require the Company to recognize impairment. As of December 31, 2010, no impairment has been necessary. As of June 30, 2011 there have been no circumstances that would yield impairment.
Management believes that the following may involve a higher degree of judgment or complexity:
Collectibility of Accounts Receivable
The Companys allowance for doubtful accounts is based on managements estimates of the creditworthiness of its customers, current economic conditions and historical information, and, in the opinion of management, is believed to be an amount sufficient to respond to normal business conditions. Should business conditions deteriorate or any major customer default on its obligations to the Company, this allowance may need to be significantly increased, which would have a negative impact upon the Companys operations. The Companys current allowance for doubtful accounts is $35.
June 30, 2011 |
December 31, 2010 |
|||||||
Accounts receivable |
$ | 3,850 | $ | 9,924 | ||||
Allowance for doubtful accounts |
35 | 26 | ||||||
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|
|
|||||
Accounts receivable, net |
$ | 3,815 | $ | 9,898 | ||||
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Reserves on Inventories
The Company establishes a reserve based on historical experience and specific reserves when it is apparent that the expected realizable value of an inventory item falls below its original cost. A charge to operations results when the estimated net realizable value of inventory items declines below cost. Management regularly reviews the Companys investment in inventories for declines in value. Adjustments are made to the reserve based on a number of factors, such as, players changing teams, falling out of favor with the public, incurring an injury, etc. These negative situations may impact valuation. However, dynamics that could increase inventory value, like the death of an athlete, do not result in writing up of inventory values. The Companys current reserve for inventory obsolescence is $530.
June 30, 2011 |
December 31, 2010 |
|||||||
Inventory |
$ | 35,676 | $ | 33,139 | ||||
Reserves for inventory obsolescence |
530 | 530 | ||||||
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|
|||||
Inventory, net |
$ | 35,146 | $ | 32,609 | ||||
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Income Taxes
Significant management judgment is required in developing the Companys provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. The Company evaluates quarterly its ability to realize its deferred tax assets and adjusts the amount of its valuation allowance, if necessary.
Goodwill and Unamortized Intangible Assets
In accordance with FASB Accounting Standards Codification Topic 350-20-35 Intangibles-Goodwill and Other > Goodwill > Subsequent Measure, the Company evaluates the carrying value of goodwill as of December 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of the reporting units goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair value. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds it implied fair value.
The Companys evaluations of the carrying amount of goodwill were completed as of December 31, 2010 in accordance with Topic 350-20-35, resulted in no impairment losses. As of June 30, 2011, there was no impairment to goodwill.
Revenue Recognition
The Company recognizes retail (including e-commerce sales and web syndication sales) and wholesale/distribution revenues at the later of (a) the time of shipment or (b) when title passes to the customers, all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Retail revenues and wholesale/distribution are recognized at the time of sale. Return allowances, which reduce gross sales, are estimated using historical experience.
Management fee revenue related to the representation and marketing of professional athletes is recognized when earned and is reflected net of its related costs of sales. The majority of the revenue generated from the representation and marketing of professional athletes relates to services as an agent. In these arrangements, the Company is not the primary obligor in these transactions but rather only receives a net agent fee.
Revenues from industry trade shows are recognized at the time of the show when tickets are submitted for autographs or actual product purchases take place. In instances when the Company receives pre-payments for show autographs, the Company records these amounts as deferred revenue.
The Company had approximately $263 in orders not yet shipped as of June 30, 2011.
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Six Months Ended June 30, 2011 versus the Six Months Ended June 30, 2010
Revenue. Total revenues increased 36.5% to $42,177 for the six months ended June 30, 2011, compared to $30,910 for the six months ended June 30, 2010. This increase was attributed to considerably higher on-line sales, off-set by contraction at our Company owned Field of Dreams stores due to fewer stores operating in the comparable period.
Manufacturing/Distribution revenues increased 15.6% to $7,175 for the six months ended June 30, 2011, compared to $6,207 for the six months ended June 30, 2010. Net revenues (after eliminating intercompany sales) increased 10.0% to $5,131 for the six months ended June 30, 2011, from $4661 for the six months ended June 30, 2010. The increase in manufacturing/distribution revenues for the period was attributed to a robust outcome from its March 2011 Sports Collectible Trade Show held in Chicago.
Retail channel revenues increased 42.4% to $36,966 for the six months ended June 30, 2011, from $25,966 for the six months ended June 30, 2010. The increase was principally driven by higher revenues generated online with an increase in sales activity at our FansEdge stores, off-set by contraction at our Field of Dreams stores due to a lower store count.
| E-Commerce - Retail revenues from our internet division increased 46.4% to $29,661during the first six months of 2011, versus $20,266 for the six months ended June 30, 2010. The increase is a result of organic growth with our owned sites featuring www.FansEdge.com and our growing web syndication portfolio. In fact, organic growth for the current six month period was over 45.0% with $19,343 in revenues, versus $13,311 for the same six month period in 2010. Syndication sales growth was equally impressive at 48.3% with $10,318 in revenues for the current six month period, versus $6,955 in syndication sales for the same six month period in 2010. |
| FansEdge stores - Retail revenues generated through our ten (10) FansEdge stores increased 29.2% to $2,605 for the first six months of 2011, from $2,016 for the six months ended June 30, 2010 when we had six (6) stores operating. Same store sales for locations operating more than 1-year were up 6.0%, with $1,986 in sales for the current six month period, versus $1,872 in sales for the same six month period in 2010. The aggressive store growth witnessed in the first quarter of 2011 has been reduced in the second quarter of 2011 due to the fact that the stores were be measured against the Chicago Blackhawks Stanley Cup victory in June 2010. During that period the stores experienced robust sales activity. |
| Field of Dreams stores - Retail revenues generated through our five (5) company-owned Field of Dreams stores decreased 5.3% to $3,488 for the first six months of 2011, from $3,684 for the six months ended June 30, 2010. We had nine (9) stores operating during the first six months of 2010. However, same store sales were up 15.5% with $3,117 in sales for the current six month period, versus $2,697 in sales for the same six month period in 2010. |
| Stadium sales Retail revenues generated through stadium sales was $1,212 for the first six months of 2011. This is a new channel for the Company and currently consists of stadium/venue sales at the University of Texas; and as of March 26, 2011, the MLS franchise Chicago Fire at their home stadium, Toyota Park. |
Costs and expenses. Total cost of sales for the six months ended June 30, 2011, increased 37.2% to $23,158, versus $16,876 in the same period last year. The increase is attributed to higher overall sales. However, as a percentage of total sales, cost of sales was 54.9% for the six months ended June 30, 2011, versus 54.5% for the same period last year.
Cost of sales of manufacturing/distribution products increased 8.1% to $2,962 for the six months ended June 30, 2011, from $2,740 for the six months ended June 30, 2010. As a percentage of manufacturing/distribution revenues, cost of sales was 57.7% for the first six months of 2011, versus 58.7% for the six months ended June 30, 2010. As a percentage of manufacturing/distribution revenues before elimination of inter-company sales, costs were 69.7% for the six months ended June 30, 2011, compared to 69.0% for the six months ended June 30, 2010.
Cost of sales of retail products increased 42.8% to $20,196 for the six months ended June 30, 2011, from $14,136 for the six months ended June 30, 2010. The increase is a result of higher overall retail sales. As a percentage of total retail sales, costs were 54.6% for the six months ended June 30, 2011, versus 54.4% for the same period last year.
Operating expenses increased 41.2% to $22,289 for the six months ended June 30, 2011, versus $15,777 for the same period last year. The increase in operating expenses was related to an overall increase in sales. The Company incurred approximately $1,340 in one-time, non-core, and or non-cash related expenses during the first six months of 2011, versus $310 in one-time, non-core related expenses in the first six months of 2010 related to its $2,000 private placement, the preparation and filing of its S-3 registration statement, a proposed acquisition and its refinancing of its senior lender. Also, the Company has made investments in its infrastructure, specifically an increase in its head count to support its aggressive retail growth. So far, 66 of the 82 new hire requisitions have been filled, including additional SEO analysts, programmers, graphic designers, QA/CSR and database administrators. As a percentage of sales, operating expenses were 52.8% for the six months ended June 30, 2011, compared to 51.0% for the six months ended June 30, 2010. For analysis purposes, backing out the one-time, none core charges, operating expenses would have been 49.6%, versus 50.0% for the same six month period in 2010.
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Interest expense, net. Net interest expense was $322 for the six months ended June 30, 2011, versus $759 for the six months ended June 30, 2010. In July 2010, the Company re-financed its credit facility with a new Bank at reduced rates.
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Provision for income taxes. The Company recognized an income tax benefit of $1,907 for the six months ended June 30, 2011, versus $1,362 for the six months ended June 30, 2010. Each quarter, the Company evaluates whether the realizability of its net deferred tax assets is more likely than not. Should the Company determine that a valuation reserve is necessary, it would have a material impact on the Companys operations. The Company has prepared an analysis based upon historical data and forecasted earnings projections to determine its ability to realize its net deferred tax asset. The Company believes that it is more likely than not that the net deferred tax asset will be realized. Therefore, the Company has determined that a valuation allowance was not necessary as of June 30, 2011 and June 30, 2010. The effective tax rate for both periods was approximately 40.0%.
Three Months Ended June 30, 2011 versus the Three Months Ended June 30, 2010
Revenue. Total revenues increased 29.8% to $18,643 for the three months ended June 30, 2011, compared to $14,366 for the three months ended June 30, 2010. This increase was attributed to considerably higher on-line sales, off-set by contraction at our Company owned stores due to fewer stores operating in the comparable period.
Manufacturing/Distribution revenues were constant at $2,679 for the three months ended June 30, 2011, compared to $2,647 for the three months ended June 30, 2010. Net revenues (after eliminating intercompany sales) also remained steady at $1,849 for the three months ended June 30, 2011, from $1,819 for the three months ended June 30, 2010.
Retail channel revenues increased 34.4% to $16,741 for the three months ended June 30, 2011, from $12,455 for the three months ended June 30, 2010. The increase was principally driven by higher revenues generated online, off-set by contraction at our Field of Dreams stores due to a lower store count.
| E-Commerce Retail revenues from our internet division increased 39.2% to $12,873 during the three months ended June 30, 2011, versus $9,250 for the three months ended June 30, 2010. The increase is a result of our organic growth with our owned sites featuring www.FansEdge.com and our growing web syndication portfolio. In fact, organic growth for the current three month period was nearly 36.0% with $8,333 in revenues, versus $6,136 for the same three month period in 2010. Syndication sales growth was impressive at 45.0% with $4,540 in revenues for the current three month period, versus $3,130 in syndication sales for the same three month period in 2010. |
| FansEdge stores - Retail revenues generated through our ten (10) FansEdge stores remained steady at $1,430 for the three months ended June 30, 2011, and $1,460 for the three months ended June 30, 2010 when we had six (6) stores operating. The Company experienced robust sales activity at its FansEdge stores during the three-months ended June 30, 2010 as a result of the Chicago Blackhawks Stanley Cup victory last year. This was the catalyst for same store sales in the current period being down 21.0% with $1,059 in same store sales this year, versus $1,356 in sales generated during the same quarter in 2010. |
| Field of Dreams stores - Retail revenues generated through our five (5) company-owned Field of Dreams stores decreased slightly to $1,692 for the three months ended June 30, 2011, from $1,745 for same period last year. We had nine (9) stores operating during the quarter in 2010. However, same store sales were up 12.6% with $1,598 in store revenues for the current quarter, versus $1,419 in same store sales generated in the same quarter in 2010. |
| Stadium sales - Retail revenues generated through stadium sales was $746 for the quarter ended June 30, 2011. This is a new channel for the Company and currently consists of stadium/venue sales at the University of Texas; and as of March 26, 2011, the MLS franchise Chicago Fire at their home stadium, Toyota Park. |
Costs and expenses. Total cost of sales for the three months ended June 30, 2011, increased 31.5% to $10,289, versus $7,823 in the same period last year. The increase is attributed to higher overall sales. However, as a percentage of total sales, cost of sales was 55.1% for the three months ended June 30, 2011, versus 54.4% for the three months ended June 30, 2010.
Cost of sales of manufacturing/distribution products increased 5.2% to $1,076 for the three months ended June 30, 2011, from $1,022 for the three months ended June 30, 2010. As a percentage of manufacturing/distribution revenues, cost of sales was 58.1% versus 56.2% for the three months ended June 30, 2010. As a percentage of manufacturing/distribution revenues before elimination of inter-company sales, costs were 71.0% for the three months ended June 30, 2011, compared to 69.9% for the three months ended June 30, 2010.
Cost of sales of retail products increased 35.4% to $9,213 for the three months ended June 30, 2011, from $6,801 for the three months ended June 30, 2010. The increase is a result of higher overall retail sales. As a percentage of total retail sales, costs were 55.0% for the three months ended June 30, 2011, versus 54.6% for the same period last year.
Operating expenses increased 34.1% to $10,254 for the three months ended June 30, 2011, compared to $7,641 for the three months ended June 30, 2010. The slight increase in operating expenses was related to an increase in overall sales. Also, the Company has made investments in its infrastructure by adding a second distribution facility to increase capacity and increasing its head count to
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support its aggressive retail growth. So far, 66 of the 82 new hire requisitions have been filled, including additional SEO analysts, programmers, graphic designers, QA/CSR and database administrators. The Company incurred $327 in one-time, non-core and or non-cash related expenses during the quarter ended June 30, 2011, versus approximately $205 in one time expenses in the same quarter in 2010, related to its $2,000 private placement, the preparation and filing of its S-3 registration statement, a proposed acquisition and its refinancing of its senior lender. As a percentage of sales, operating expenses were 55.0% for the three months ended June 30, 2011, compared to 53.2% for the three months ended June 30, 2010. For analysis purposes, backing out the one-time, non-core and or non-cash charges, operating expenses were 53.2% for the quarter ended June 30, 2011, versus 51.7% for the same quarter in 2010.
Interest expense, net. Net interest expense was $198 for the three months ended June 30, 2011, versus $414 for the three months ended June 30, 2010. In July 2010, the Company re-financed its credit facility with a new Bank at reduced rates.
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Provision for income taxes. The Company recognized an income tax benefit of $1,049 for the three months ended June 30, 2011, versus an income tax benefit of $785 for the three months ended June 30, 2010. Each quarter, the Company evaluates whether the realizability of its net deferred tax assets is more likely than not. Should the Company determine that a valuation reserve is necessary, it would have a material impact on the Companys operations. The Company has prepared an analysis based upon historical data and forecasted earnings projections to determine its ability to realize its net deferred tax asset. The Company believes that it is more likely than not that the net deferred tax asset will be realized. Therefore, the Company has determined that a valuation allowance was not necessary as of June 30, 2011 and June 30, 2010. The effective tax rate for both periods was approximately 40.0%.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity during the six months ended June 30, 2011, were the cash flows generated daily from our operating subsidiaries, availability under our $25,000 senior revolving credit facility and available cash.
The balance sheet as of June 30, 2011 reflects working capital of $14,173 versus working capital of $19,639 at December 31, 2010. At June 30, 2011, the Companys cash was $314, compared to a cash balance of $440 at December 31, 2010. The Company is not negatively impacted by the cash balance of $314 at June 30, 2011, as it has sufficient access to capital under its $25,000 revolving credit facility with its senior lender. The facility goes to $27,500 on October 1, 2011. Net accounts receivable at June 30, 2011 were $3,815, compared to $9,898 at December 31, 2010.
Use of Funds
Cash used in operations amounted to $15,842 for the six months ended June 30, 2011, compared to $8,953 cash used in operations during the same period of 2010. The increase in cash used in operations was mainly attributable to the Company decreasing its accrued liabilities, decreasing its accounts payables, and increasing its inventory levels to support its growth.
Cash used in investing activities was $1,407 for the six months ended June 30, 2011, compared to $607 cash used in investing activities for the same period of 2010. The additional cash used in investing activities was due to acquiring more assets.
Cash provided by financing activities was $17,123 for the six months ended June 30, 2011, versus $9,486 cash provided by financing activities for the same period in 2010. The increase in cash provided by financing activities was due to the Company decreasing its accrued liabilities, decreasing its accounts payables, and increasing its inventory levels to support its growth.
Other Activity
Effective July 7, 2011, the Company executed a Second Amendment to its Loan and Security Agreement with its senior lender, Regions Bank. As a result, the Company filed a form 8-K on Monday, July 11, 2011 whereby it disclosed that its credit facility was increased immediately to $25,000, with the facility increasing to $27,500 for the months October thru December. In addition, the interest rate was reduced from libor plus a 3.00% margin, to libor plus a 2.50% margin.
By way of background, on July 23, 2010, the Company entered into a 3-year loan and security agreement with Regions Bank who provided the Company with a $20,000 Senior Secured Credit Facility, of which $11,200 was used at closing to pay-off its previous loan balances with Comerica Bank. The interest rate on the loan balance is the 30-day libor rate plus a 3.00% margin. The interest rates on outstanding loan balances were reduced from 6.5% from the previous lender, to libor plus a 3.00 margin, or 3.34% for the new line of credit. The new 3-year loan and security agreement is secured by all of the assets of the Company and its divisions. The Regions credit facility requires that certain performance financial covenants be met on a monthly and or quarterly and or yearly basis. These financial covenants consist of a Fixed Charge Coverage Ratio and a Funded Debt to EBITDA Ratio.
The F.C.C. Ratio is defined as EBITDA, plus Rent Expense, minus all unfinanced Capital Expenditures, plus taxes paid, and any restricted payments made (over a rolling 12 month period ending in the current quarter). This amount is then divided by Interest Expense, Rent expense, and the current maturities of funded debt (over a rolling 12 month period ending in the current quarter). For the quarter ended June 30, 2011, the Company was not subjected to a minimum ratio.
The Funded Debt to EBITDA ratio includes: debt for borrowed funds, subordinated debts, the principal component of all capital leases, any deferred payment by one year or more, and all other debt instruments (other than checks drawn in the ordinary course of business), divided by EBITDA. For the quarter ended June 30, 2011, the required ratio needs to be less than 4.00 to 1.00. The actual ratio was 3.80 to 1.00.
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On July 16, 2010, the Company entered into a Subscription Agreement with a group led by William Blair & Company, LLC whereby the Company agreed to sell and issue to the investors a total of 4,615,384 shares of the Companys common stock for $6,000. The shares had been registered on a Form S-3 filed by the Company with the Securities and Exchange Commission.
On May 18, 2010, the Company entered into a Securities Purchase Agreement with three accredited investors, pursuant to which the Company raised $2,000 through the issuance of 1,428,570 shares of the Companys common stock and warrants to purchase 285,714 shares of the Companys common stock at an exercise price of $1.80 per share. The offering was exempt from registration pursuant to exemption under section 4(2) of the Securities Act of 1933.
In an effort to align expenses more closely with anticipated revenues at our Sports & Celebrity Manufacturing division, the Company has closed its Chicago, IL based satellite facility effective April 1, 2011. The associated expense savings will be about $500 on an annual basis. In addition, the Company closed its satellite office in Denver, CO yielding approximately an additional $50 in savings on an annual basis.
In order to support its considerable online growth, the Company has executed a 1-year lease with an option for an additional year for a satellite warehouse/distribution facility in the Chicago market to increase capacity. The new space is approximately 120,000 sq ft with a monthly occupancy cost of about $35.
In 2010, in order to properly fund our growth and leverage each of the opportunities that the Company is delivering to its environment, it was determined that a strengthening of the balance sheet through a $2,000 private placement and subsequently, a $6,000 sale of newly issued common shares was prudent. These equity raises were completed in May 2010 and July 2010, respectively. The Company was also successful in re-financing its senior debt on July 23, 2010 that has significantly reduced its cost of capital, thus, providing the Company with meaningful interest expense savings.
Summary
Management believes that future funds generated from our operations and available borrowing capacity will be sufficient to fund our debt service requirements, working capital requirements and our budgeted capital expenditure requirements for the foreseeable future.
Off-balance sheet arrangements
We have not created and are not a party to any special purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business. Except as described herein, our management is not aware of any known trends or demands, commitments, events or uncertainties, as they relate to liquidity which could negatively affect our ability to operate and grow as planned, other than those previously disclosed.
NEW ACCOUNTING PRONOUNCEMENTS
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not required for smaller reporting companies.
Item 4. | Controls and Procedures. |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation as required by paragraph (b) of Rule 13a-15 and 15d-15 of the Exchange Act, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of June 30, 2011. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
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Changes in Internal Control Over Financial Reporting.
There have been no changes in our internal controls over financial reporting that occurred during the second fiscal quarter of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. |
Legal Proceedings.
None.
Item 1A. | Risk Factors. |
Not required for smaller reporting companies.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
Item 3. | Defaults upon Senior Securities. |
None.
Item 4. | Removed and Reserved |
None.
Item 5. | Other Information. |
None.
Item 6. | Exhibits. |
No. |
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10.1 | Regions Bank Second Amendment to Loan and Security Agreement dated July 7, 2011 | |
31.1 | Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.) | |
32.2 | Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.) | |
101.INS** | XBRL Instance Document | |
101.SCH** | XBRL Taxonomy Extension Schema | |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase | |
101.LAB** | XBRL Taxonomy Extension Label Linkbase | |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DREAMS, INC. | ||
By: | /s/ Ross Tannenbaum | |
Ross Tannenbaum, Chief Executive Officer, | ||
Principal Executive Officer |
August 15, 2011.
By: | /s/ Dorothy Sillano | |
Dorothy Sillano, Chief Financial Officer, | ||
Principal Accounting Officer |
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Exhibit Index
Exhibit No. |
Description | |
10.1 | Regions Bank Second Amendment to Loan and Security Agreement dated July 7, 2011 | |
31.1 | Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.) | |
32.2 | Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.) | |
101.INS** | XBRL Instance Document | |
101.SCH** | XBRL Taxonomy Extension Schema | |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase | |
101.LAB** | XBRL Taxonomy Extension Label Linkbase | |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. |
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Exhibit 10.1
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this Amendment) is made and entered into as of July 7, 2011, by and among DREAMS, INC., a Utah corporation (Parent), DREAMS FRANCHISE CORPORATION, a California corporation (Dreams Franchise), DREAMS PRODUCTS, INC., a Utah corporation (Dreams Products), DREAMS RETAIL CORPORATION, a Florida corporation (Dreams Retail), DREAMS / PRO SPORTS, INC., a Florida corporation (Pro Sports), FANSEDGE INCORPORATED, a Delaware corporation (Fansedge), RIOFOD, L.P., a Nevada limited partnership (RIOFOD), CAEFOD, L.P., a Nevada limited partnership (CAEFOD), SWFOD, L.P., a Nevada limited partnership (SWFOD), STARSLIVE365, LLC, a Nevada limited liability company (StarsLive), 365 LAS VEGAS, L.P., a Nevada limited partnership (365 Las Vegas), and THE GREENE ORGANIZATION, INC., a Florida corporation (Greene Organization; Parent, Dreams Franchise, Dreams Products, Dreams Retail, Pro Sports, Fansedge, RIOFOD, CAEFOD, SWFOD, StarsLive, 365 Las Vegas, and Greene Organization are collectively referred to herein as Borrowers and individually as a Borrower), and REGIONS BANK, an Alabama bank (together with its successors and assigns, Lender).
Recitals:
Lender and Borrowers are parties to a certain Loan and Security Agreement dated July 23, 2010, as amended by the certain First Amendment to Loan and Security Agreement dated as of June 27, 2011 (as so amended, and as at any other time amended, restated, supplemented or otherwise modified, the Loan Agreement), pursuant to which Lender has made certain revolving credit loans to Borrowers.
Borrowers have requested that Lender increase the amount of the Revolving Loan Commitment and to amend the concentration limits for Eligible Accounts owing by J.C. Penney Company, Inc.
Lender is willing to amend the Loan Agreement on the terms and subject to the conditions set forth below.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby severally acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
1. Definitions. All capitalized terms used in this Agreement, unless otherwise defined herein, shall have the meaning ascribed to such terms in the Loan Agreement.
2. Amendments to Loan Agreement. The Loan Agreement is hereby amended as follows:
(a) Effective as of June 1, 2011, by deleting the definition of Applicable Margin in Section 1.2 of the Loan Agreement and by substituting in lieu thereof the following:
Applicable Margin means as to any Revolving Loan, or portion thereof, that is a LIR Loan, 2.50%. If any Loans are converted to Base Rate Loans because of Section 2.3(g), then the Applicable Margin for such Base Rate Loans shall be 0.50% for Revolving Loans.
(b) By deleting clause (j)(iv) of the definition of Eligible Accounts in Section 1.2 of the Loan Agreement and by substituting in lieu thereof the following:
(iv) with respect to J.C. Penney Company, Inc., 50% (or such lesser percentage as Lender may determine in its discretion) of the total of Borrowers Accounts; and
(c) By deleting clause (1) of the definition of Eligible Accounts in Section 1.2 of the Loan Agreement and by substituting in lieu thereof the following:
(1) (i) arising from a sale on a bill-and-hold, progress billing, guaranteed sale, sale-or-return, sale-on-approval, consignment, or similar basis or (ii) unless Lender otherwise elects in its discretion, due from any credit or charge card company or any credit or charge card processor, servicer, or administrator;
(d) By deleting the definition of Revolving Loan Commitment in Section 1.2 of the Loan Agreement and by substituting in lieu thereof the following:
Revolving Loan Commitment means the commitment of Lender, subject to the terms and conditions herein, to make Revolving Loans and issue Letters of Credit in accordance with the provisions of Section 2 in an aggregate amount not to exceed at any one time: (a) for the period beginning on October 1 of any Fiscal Year and ending on December 31 of the same Fiscal Year, $27,500,000, and (b) at all other times, $25,000,000.
3. Additional Covenants. To induce Lender to enter into this Amendment, Borrowers covenant and agree to deliver to Lender, on or before July 29, 2011, a lenders loss payable endorsement with respect to policy number 35935122TPA issued by Great Northern Insurance Company, naming Lender as lenders loss payee, in form and substance satisfactory to Lender.
4. Ratification and Reaffirmation. Each Borrower hereby (a) acknowledges that each person that, on behalf of such Borrower, executed the Loan Agreement, each amendment to the Loan Agreement entered into prior to the date hereof, and each of the other Loan Documents, had the requisite power and authority to execute the Loan Agreement, each such amendment, and such other Loan Documents on behalf of such Borrower, and (b) ratifies and reaffirms the Obligations, the Loan Agreement, each amendment to the Loan Agreement, and each of the other Loan Documents and all of such Borrowers covenants, duties, indebtedness and liabilities under the Loan Agreement (as amended by each amendment) and such other Loan Documents.
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5. Acknowledgments and Stipulations. Each Borrower acknowledges and stipulates that the Loan Agreement and the other Loan Documents executed by such Borrower are legal, valid and binding obligations of such Borrower that are enforceable against such Borrower in accordance with the terms thereof; all of the Obligations are owing and payable without defense, offset or counterclaim (and to the extent there exists any such defense, offset or counterclaim on the date hereof, the same is hereby waived by such Borrower); the security interests and Liens granted by such Borrower in favor of Lender are duly perfected, first priority security interests and Liens; and as of the close of business on June 29, 2011, (a) the unpaid principal amount of the Revolving Loans totaled $18,353,426.38, and (b) the LC Obligations totaled $600,000.
6. Representations and Warranties. Each Borrower represents and warrants to Lender, to induce Lender to enter into this Amendment, that no Default or Event of Default exists on the date hereof; the execution, delivery and performance of this Amendment have been duly authorized by all requisite corporate or other company action on the part of such Borrower and this Amendment has been duly executed and delivered by such Borrower; all of the representations and warranties made by such Borrower in the Loan Agreement are true and correct on and as of the date hereof.
7. Reference to Loan Agreement. Upon the effectiveness of this Amendment, each reference in the Loan Agreement to this Agreement, hereunder, or words of like import shall mean and be a reference to the Loan Agreement, as amended by this Amendment.
8. Breach of Amendment. This Amendment shall be part of the Loan Agreement and a breach of any representation, warranty or covenant herein shall constitute an Event of Default.
9. Conditions Precedent. The effectiveness of the amendments contained in Section 2 hereof is subject to the delivery by Borrowers to Lender of each of the following in form and substance satisfactory to Lender, which shall constitute conditions precedent hereunder, unless satisfaction thereof is specifically waived in writing by Lender:
(a) an original counterpart of this Amendment, duly executed by Borrowers, together with a Consent and Reaffirmation, duly executed by The Comet Clothing Company, LLC;
(b) an original of the Amended and Restated Revolving Note, duly executed by Borrowers, in the form attached hereto as Exhibit A;
(c) with respect to each Borrower, a secretarys certificate (or substantively similar document acceptable to Lender) certifying the resolutions of the appropriate governing body or board authorizing the transactions contemplated herein; and
(d) such other documents, instruments and agreements as Lender may reasonably request.
10. Expenses of Lender. Borrowers agree to pay, on demand, all costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of
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this Amendment and any other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lenders legal counsel and any taxes or expenses associated with or incurred in connection with any instrument or agreement referred to herein or contemplated hereby.
11. Effectiveness; Governing Law. This Amendment shall be effective upon acceptance by Lender in Atlanta, Georgia (notice of which acceptance is hereby waived), whereupon the same shall be governed by and construed in accordance with the internal laws of the State of Georgia.
12. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
13. No Novation. Except as otherwise expressly provided in this Amendment, nothing herein shall be deemed to amend or modify any provision of the Loan Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This Amendment is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement as herein modified shall continue in full force and effect.
14. Counterparts; Electronic Signatures. This Amendment may be executed in any number of counterparts and by different parties to this Amendment on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile or other electronic transmission shall be deemed to be an original signature hereto.
15. Further Assurances. Borrowers agree to take such further actions as Lender shall reasonably request from time to time in connection herewith to evidence or give effect to the amendments set forth herein or any of the transactions contemplated hereby.
16. Section Titles. Section titles and references used in this Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto.
17. Release of Claims. To induce Lender to enter into this Amendment, each Borrower hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that any Borrower now has or ever had against Lender arising under or in connection with any of the Loan Documents or otherwise. Each Borrower represents and warrants to Lender that such Borrower has not transferred or assigned to any Person any claim that any Borrower ever had or claimed to have against Lender.
18. Waiver of Jury Trial. To the fullest extent permitted by applicable law, the parties hereto each hereby waives the right to trial by jury in any action, suit, counterclaim or proceeding arising out of or related to this Amendment.
[Remainder of page intentionally left blank; signatures being on following page]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed under seal and delivered by their respective duly authorized officers as of the date first written above.
BORROWERS: | ||||||||
DREAMS, INC. | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[CORPORATE SEAL] | ||||||||
DREAM FRANCHISE CORPORATION | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[CORPORATE SEAL] | ||||||||
DREAMS PRODUCTS, INC. | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[CORPORATE SEAL] | ||||||||
DREAMS RETAIL CORPORATION | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[CORPORATE SEAL] |
[Signatures continued on following page]
Second Amendment to Loan and Security Agreement
DREAMS PRO SPORTS, INC. | ||||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||||
[CORPORATE SEAL] | ||||||||||
FANSEDGE INCORPORATED | ||||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||||
David Greene, Secretary | Ross Tannenbaum, Chief Executive Officer | |||||||||
[CORPORATE SEAL] | ||||||||||
RIOFOD, L.P. | ||||||||||
By: | Dreams Retail Corporation, its General Partner | |||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||||
[SEAL] | ||||||||||
CAEFOD, L.P. | ||||||||||
By: | Dreams Retail Corporation, its General Partner | |||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||||
[SEAL] | ||||||||||
SWFOD, L.P. | ||||||||||
By: | Dreams Retail Corporation, its General Partner | |||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||||
[SEAL] |
[Signatures continued on following page]
Second Amendment to Loan and Security Agreement
STARSLIVE365, LLC | ||||||||||
By: | Dreams, Inc, its Manager | |||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||||
[SEAL] | ||||||||||
365 LAS VEGAS, L.P. | ||||||||||
By: | Dreams Retail Corporation, its General Partner | |||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||||
[SEAL] | ||||||||||
THE GREENE ORGANIZATION, INC. | ||||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||||
David Greene, Secretary | Ross Tannenbaum, Chief Executive Officer | |||||||||
[CORPORATE SEAL] |
[Signatures continued on following page]
Second Amendment to Loan and Security Agreement
LENDER:
REGIONS BANK (Lender) | ||
By: | /s/ James Baravis | |
Name: | James Baravis | |
Title: | SVP |
Second Amendment to Loan and Security Agreement
Exhibit A
AMENDED AND RESTATED REVOLVING NOTE
$27,500,000.00 | July 7, 2011 |
FOR VALUE RECEIVED, each of DREAMS, INC., a Utah corporation (Parent), DREAMS FRANCHISE CORPORATION, a California corporation (Dreams Franchise), DREAMS PRODUCTS, INC., a Utah corporation (Dreams Products), DREAMS RETAIL CORPORATION, a Florida corporation (Dreams Retail), DREAMS / PRO SPORTS, INC., a Florida corporation (Pro Sports), FANSEDGE INCORPORATED, a Delaware corporation (Fansedge), RIOFOD, L.P., a Nevada limited partnership (RIOFOD), CAEFOD, L.P., a Nevada limited partnership (CAEFOD), SWFOD, L.P., a Nevada limited partnership (SWFOD), STARSLIVE365, LLC, a Nevada limited liability company (StarsLive), 365 LAS VEGAS, L.P., a Nevada limited partnership (365 Las Vegas), and THE GREENE ORGANIZATION, INC., a Florida corporation (Greene Organization; Parent, Dreams Franchise, Dreams Products, Dreams Retail, Pro Sports, Fansedge, RIOFOD, CAEFOD, SWFOD, StarsLive, 365 Las Vegas, and Greene Organization, are collectively referred to herein as Borrowers and individually as Borrower), jointly and severalty promises to pay to the order of REGIONS BANK (Lender) at the place and times provided in the Loan Agreement referred to below, the principal sum of TWENTY SEVEN MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($27,500,000.00) or the principal amount of all Revolving Loans made by Lender from time to time pursuant to that certain Loan and Security Agreement dated as of the date hereof, by and among Borrowers and Lender (as the same may be amended, restated, supplemented, or otherwise modified from tune to time, the Loan Agreement). Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Loan Agreement.
The unpaid principal amount of this Amended and Restated Revolving Note (this Revolving Note) from time to time outstanding is subject to mandatory repayment from time to time as provided in the Loan Agreement and shall bear interest as provided in the Loan Agreement. All payments of principal and interest on this Revolving Note shall be payable to Lender or other holder of this Revolving Note in lawful currency of the United States of America in immediately available funds in the manner and location indicated in the Agreement or wherever else Lender or such holder may specify.
This Revolving Note is entitled to the benefits of, and evidences Obligations incurred under, the Loan Agreement, to which reference is made for a description of the security for this Revolving Note and for a statement of the terms and conditions on which Borrowers are permitted and required to make prepayments and repayments of principal of the Obligations evidenced by this Revolving Note and on which such Obligations may be declared to be immediately due and payable.
Borrowers agree, in the event that this Note or any portion hereof is collected by law or through an attorney at law, to pay all costs of collection, including, without limitation, reasonable attorneys fees and court costs.
This Revolving Note amends, restates, renews, replaces and supersedes that certain Revolving Note dated July 23, 2010, made by Borrowers to the order of Lender in the original principal amount of $20,000,000 (the Prior Note). It is the intention of Borrowers and Lender that while this Revolving Note amends, restates, renews, replaces and supersedes the Prior Note, it is not in payment or satisfaction of the Prior Note, but rather constitutes the substitution of one evidence of debt for another without any intent to extinguish the old. This Revolving Note is not intended to be, and shall not be construed as, a novation or an accord and satisfaction of the Prior Note.
This Revolving Note shall be governed, construed and enforced in accordance with the laws of the State of Georgia, without reference to the conflicts or choice of law principles thereof.
Each Borrower hereby waives all requirements as to diligence, presentment, demand of payment, protest, and (except as required by the Loan Agreement) notice of any kind with respect to this Revolving Note.
[Remainder of page intentionally left blank; Signatures appear on following page.]
IN WITNESS WHEREOF, each of the undersigned has executed this Revolving Note under seal on the day and year first written above.
BORROWERS: | ||||||||
DREAMS, INC. | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[CORPORATE SEAL] | ||||||||
DREAMS FRANCHISE CORPORATION | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[CORPORATE SEAL] | ||||||||
DREAMS PRODUCTS, INC. | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[CORPORATE SEAL] | ||||||||
DREAMS RETAIL CORPORATION | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[CORPORATE SEAL] | ||||||||
DREAMS / PRO SPORTS, INC. | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[CORPORATE SEAL] | ||||||||
FANSEDGE INCORPORATED | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, Chief Executive Officer | |||||||
[CORPORATE SEAL] |
[Signatures continue on following page.]
Amended and Restated Revolving Note
RIOFOD, L.P. | ||||||||
By: | Dreams Retail Corporation, its General Partner | |||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[SEAL] | ||||||||
CAEFOD, L.P. | ||||||||
By: | Dreams Retail Corporation, its General Partner | |||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[SEAL] | ||||||||
SWFOD, L.P. | ||||||||
By: | Dreams Retail Corporation, its General Partner | |||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[SEAL] | ||||||||
STARLIVE365, LLC | ||||||||
By: | Dreams, Inc., its Manager | |||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[SEAL] | ||||||||
365 LAS VEGAS, L.P. | ||||||||
By: | Dreams Retail Corporation, its General Partner | |||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, President | |||||||
[SEAL] | ||||||||
THE GREENE ORGANIZATION, INC. | ||||||||
By: | /s/ David Greene |
By: | /s/ Ross Tannenbaum | |||||
David Greene, Secretary | Ross Tannenbaum, Chief Executive Officer | |||||||
[CORPORATE SEAL] |
Amended and Restated Revolving Note
Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO SECTION 302
I, Ross Tannenbaum, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Dreams, Inc. (the Registrant); |
2. | Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report. |
3. | Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the period presented in this Quarterly Report; |
4. | The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the Registrants disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and |
5. | The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the Registrants auditors and the audit committee of Registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
Date: August 15, 2011 | /s/ Ross Tannenbaum | |||||
Ross Tannenbaum | ||||||
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
PURSUANT TO SECTION 302
I, Dorothy Sillano, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Dreams, Inc. (the Registrant); |
2. | Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report. |
3. | Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report; |
4. | The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the Registrants disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and |
5. | The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of Registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
Date: August 15, 2011 | /s/ Dorothy Sillano | |||||
Dorothy Sillano | ||||||
Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report of Dreams, Inc. (the Company) on Form 10-Q for the period ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Ross Tannenbaum, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fully presents, in all material respects, the financial condition and results of operations of the Company.
By: | /s/ Ross Tannenbaum | |
Ross Tannenbaum | ||
Principal Executive Officer | ||
August 15, 2011 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report of Dreams, Inc. (the Company) on Form 10-Q for the period ending June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Dorothy Sillano, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fully presents, in all material respects, the financial condition and results of operations of the Company.
By: | /s/ Dorothy Sillano | |
Dorothy Sillano | ||
Principal Financial Officer | ||
August 15, 2011 |
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M4RZ "+ text.join( " " + text[p] + " ' + raw + ' Upon the closing of an acquisition, management estimates the fair values of assets and liabilities, acquired and consolidates the acquisition as quickly as possible. However, it routinely takes time to obtain all of the pertinent information to finalize the acquired company's balance sheet and supporting schedules and to adjust the acquired company's accounting policies, procedures, books and records to the Company's standards. As a result, it may take several quarters before the Company is able to finalize those initial fair value estimates. Accordingly, it is not uncommon for initial estimates to be subsequently revised. On April 18, 2011, the Company through its 51% owned subsidiary, executed an Asset Purchase Agreement ("APA") to acquire the trademarks and web domain of the "Zubaz" brand name. The total purchase price stated in the APA was $400, of which $200 was paid upon execution and the remainder shall be paid on January 6, 2012. The Company is the guarantor for the remaining balance to be paid on behalf of the subsidiary. The unpaid balance of $200 is included in accrued expenses at June 30, 2011. Management has determined the value of the trademarks to be $300 and the value of the domain name to be $100. The domain name was estimated to have a useful life of five years. In preparing the interim consolidated financial statements, the Company has evaluated, for the potential recognition or disclosure, events or transactions subsequent to the end of the most recent quarterly period through the date of issuance of the financial statements. As discussed in Note 10, on July 7, 2011, the Company amended its credit facility with Regions Bank. The Company has two reportable segments as identified by information reviewed by the Company's chief operating decision makers (CODM), our CEO and SVP Finance. The divisions whose customers are reseller's of our goods have their results reflected in the manufacturing/distribution segment. The retail segment is made up of many locations for our inventory. Revenues are achieved by moving inventory through our sales channels to reach and expand our customer base. These channels include the Internet, stores and our catalogues. Hence, customers who are the end users of our goods have their results reflected in our retail segment. The Manufacturing/Distribution segment represents the manufacturing and wholesaling of sports memorabilia products and acrylic display 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 Retail Operations segment is multi-channel and features numerous Internet sites, catalogues, stadium and some traditional brick and mortar stores: All of the Company's revenue generated during the six and three months ended June 30, 2011 and June 30, 2010, was derived in the United States and all of the Company's assets are located in the United States. 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 six and three month periods ended June 30, 2011 and June 30, 2010 was as follows: Six Months Ended: June 30, 2011 Net sales Intersegment net sales Operating (loss) Total assets June 30, 2010 Net sales Intersegment net sales Operating (loss) Total assets Reconciliation to consolidated amounts is as follows: Revenues: Total revenues for reportable segment Other revenues Eliminations of intersegment Total consolidated revenues Pre-tax (loss): Total operating (loss) for reportable segments Other (loss)* Less: Interest expense Total consolidated (loss) before taxes Three Months Ended: June 30, 2011 Net sales Intersegment net sales Operating (loss) Total assets June 30, 2010 Net sales Intersegment net sales Operating (loss) Total assets Reconciliation to consolidated amounts is as follows: Revenues: Total revenues for reportable segment Other revenues Eliminations of intersegment Total consolidated revenues Pre-tax (loss): Total operating (loss) for reportable segments Other (loss)* Less: Interest expense Total consolidated (loss) before taxes A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements. Effective July 7, 2011, the Company executed a Second Amendment to its Loan and Security Agreement with its senior lender, Regions Bank. As a result, the Company filed a form 8-K on Monday, July 11, 2011 whereby it disclosed that its credit facility was increased immediately to $25,000, with the facility increasing to $27,500 for the months October thru December. In addition, the interest rate was reduced from libor plus a 3.00% margin, to libor plus a 2.50% margin. By way of background, on July 23, 2010, the Company successfully re-financed its senior debt with Comerica Bank as a result of a newly issued $20,000 senior secured credit facility provided by Regions Bank. At closing, $11,200 from the new line of credit was used to pay-off the outstanding balance with Comerica Bank. The interest rates on outstanding loan balances were reduced from 6.5% from the previous lender, to libor plus a 3.00% margin, or 3.34% for the new line of credit. The advance rates on the credit facility are 80% for eligible accounts receivable and 50% for eligible inventory for January, February and March; 55% for eligible inventory for April and May; and 60% for eligible inventory for June through December. The new 3-year loan and security agreement is secured by all of the assets of the Company and its divisions. The Regions credit facility requires that certain performance financial covenants be met on a monthly and or quarterly and or yearly basis. These financial covenants consist of a Fixed Charge Coverage Ratio and a Funded Debt to EBITDA Ratio. The F.C.C. Ratio is defined as EBITDA, plus Rent Expense, minus all unfinanced Capital Expenditures, plus taxes paid, and any restricted payments made (over a rolling 12 month period ending in the current quarter). This amount is then divided by Interest Expense, Rent expense, and the current maturities of funded debt (over a rolling 12 month period ending in the current quarter). For the quarter ended June 30, 2011, the Company was not subjected to a minimum ratio. The Funded Debt to EBITDA ratio includes: debt for borrowed funds, subordinated debts, the principal component of all capital leases, any deferred payment by one year or more, and all other debt instruments (other than checks drawn in the ordinary course of business), divided by EBITDA. For the quarter ended June 30, 2011, the required ratio needs to be less than 4.00 to 1.00. The actual ratio was 3.80 to 1.00. The Company has certain contracts with several athletes which will require the Company to make minimum payments to these athletes over the next two years. The payments are in exchange for autographs and licensing rights on inventory items to be received in the future. The Company leases its corporate offices, manufacturing, warehouse and distribution facilities along with its company-owned stores under operating leases with varying terms and lengths. Rent expense under these leases for the six and three months ended June 30, 2011 and June 30, 2010 were $2,627, $2,342 and $1,359, $1,157, respectively. The Company leases certain computer and warehouse equipment under capital leases. The leases collectively require monthly payments of $8 and expire through 2014. Interest rates on the capital leases range from 3% to 10%. The Company was a named party in a breach of contract suit brought by a former landlord. The Company believes the claim is without merit and has defended itself vigorously. The parties are scheduled to go to trial in October 2011. No outcome can be determined at this time. The condensed consolidated interim financial statements included herein have been prepared by Dreams, Inc. (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 10-K, for the calendar year ended December 31, 2010, filed with the SEC on March 30, 2011. 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 FASB Accounting Standards Codification, ASC Topic 270 — Interim Reporting and reflect, in management's opinion, all adjustments, which are of a normal recurring nature, necessary to summarize fairly the financial position and results of operations for such periods. Due to the seasonality of our business, the results of operations for such interim periods are not necessarily indicative of the results expected for future quarters or the full calendar year. On April 1, 2011 the Company converted advances totaling $328 to an athlete client into a note receivable maturing on December 31, 2013. The terms of the note call for repayments of $84 through December 31, 2011 and $122 in years two and three. These amounts can be repaid in the form of services, receipt of autographed products and player appearances. At June 30, 2011 the current portion of the note receivable balance was $47 and the long-term portion was $243 The components of inventories are as follows: Raw materials Work in process Finished goods, net Total In accordance with FASB Accounting Standards Codification Topic 350-20-35 Intangibles – Goodwill and Other > Goodwill > Subsequent Measurement , the Company evaluates the carrying value of goodwill as of December 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of the reporting unit's goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair value. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds it implied fair value. The Company's evaluations of the carrying amount of goodwill were completed as of December 31, 2010 and resulted in no impairment losses. There has been no subsequent event that resulted in evaluation adjustments as of June 30, 2011. Description of Business Dreams, Inc. and its subsidiaries (collectively the "Company") are principally engaged in the manufacturing, distribution and retailing of licensed sports products, sports & celebrity memorabilia and acrylic display cases through multiple distribution channels; including internet, brick & mortar, catalogue, kiosks, and trade shows. The Company is also in the business of athlete representation and corporate marketing of individual athletes. The Company's customers are located throughout North America. Principals of Consolidation 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. Earnings per Share For the six months ended June 30, 2011, weighted average shares outstanding for basic earnings per share purposes was 44,563,624. For the six months ended June 30, 2011, weighted average shares outstanding for diluted earnings per share purposes was 45,107,886. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. For the six months ended June 30, 2010, weighted average shares outstanding for basic earnings per share purposes was 37,955,943. For the six months ended June 30, 2010, weighted average shares outstanding for diluted earnings per share purposes was 38,901,624. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. For the three months ended June 30, 2011, weighted average shares outstanding for basic earnings per share purposes was 44,632,604. For the three months ended June 30, 2011, weighted average shares outstanding for diluted earnings per share purposes was 45,088,132. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. For the three months ended June 30, 2010, weighted average shares outstanding for basic earnings per share purposes was 38,267,107. For the three months ended June 30, 2010, weighted average shares outstanding for diluted earnings per share purposes was 39,178,628. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. Stock Compensation Effective April 1, 2006, the Company adopted the provisions of, and accounted for stock-based compensation in accordance with FASB Accounting Standards Codification, Topic 718 Compensation – Stock Compensation. Under the fair value recognition provisions of Topic 718, stock-based compensation cost is measured at the grant date based on the fair value of the award over the requisite service period, which is the vesting period. The Company elected the modified-prospective method of adoption, under which prior periods are not revised for comparative purposes. The Company has elected the graded-vesting attribution method for recognizing stock-based compensation expense over the requisite service period for each separately vesting tranche of awards as though the awards were, in substance, multiple awards. The valuation provisions of Topic 718 apply to new grants and to grants that were outstanding as of the effective date and are subsequently modified. For the six months ended June 30, 2011 and June 30, 2010, the Company recorded $20 and $0 of pre-tax share-based compensation expense under Topic 718, recorded in selling and administrative expense in the Condensed Consolidated Statement of Operations, respectively. This expense was offset by approximately a $8 and $0 in a deferred tax benefit for non-qualified share-based compensation, respectively. Share-Based Compensation Awards The following disclosure provides information regarding the Company's share-based compensation awards, all of which are classified as equity awards in accordance with FASB Accounting Standards Codification, Topic 718 Compensation – Stock Compensation: Stock Options - The Company grants stock options to employees that allow them to purchase shares of the Company's common stock. Options are also granted to outside members of the Board of Directors of the Company as well as independent contractors. The Company determines the fair value of stock options at the date of grant using the Black-Scholes valuation model. Options generally vest immediately, however, the Company has granted options that vest over three to five years. Awards generally expire three to five years after the date of grant. As of June 30, 2011, vested options totaled 587,661 with an average price of $.67. Unvested options totaled 278,000. Total outstanding options that were "in the money" at June 30, 2011 were 865,661 with an average price per option of $1.21. Of those options, the vested "in the money" options totaled 587,661 with an average price of $.67 and the "in the money" unvested options totaled 278,000. During the six months ended June 30, 2011; there were 360,001 options granted, 46,746 options expired, no options cancelled, and 525,523 options exercised. The following table summarizes the stock option activity from January 1, 2011, through June 30, 2011: January 1, 2011 Granted Expired Cancelled Exercised June 30, 2011 The following table breaks down the number of outstanding options with their corresponding contractual life as well as the exerciseable weighted average (WA), outstanding exercise price, number of vested options with the corresponding exercise price by price range. Options Breakdown by Range at 6/30/2011 Range $0.41 to $1.19 $1.20 to $2.75 $.41 to $2.75 At June 30, 2011, exercisable options had aggregate intrinsic values of $1,219. Income Taxes Effective January 1, 2007, the Company adopted the provisions of FASB Accounting Standards Codification Topic 740-10-65, "Accounting for Uncertainty in Income Taxes". The Interpretation provides clarification on accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with "Accounting for Income Taxes." The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company's evaluation, no significant income tax uncertainties were identified. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates underlying the accompanying consolidated financial statements include: the determination of the lower of cost or market adjustment for inventory; sales returns; the allowance for doubtful accounts; the recoverability of long-lived and intangible assets; the determination of deferred income taxes, including related valuation allowances; the accrual for actual, pending or threatened litigation, claims and assessments; and assumptions related to the determination of stock-based compensation In an on-going basis, the Company reviews its outstanding customer receivables for collectability. Adjustments to the allowance account are made according to current knowledge. Additionally, management reviews the composition of its inventory no less than annually. Reserves are adjusted accordingly. On a quarterly basis, the Company also evaluates its ability to realize its deferred tax assets and whether or not a valuation allowance is necessary. The Company has both Goodwill and other long-lived intangible assets which are not amortized. As prescribed by the FASB, the Company evaluates the carrying value of these assets for impairment. Significant economic changes may require the Company to recognize impairment. As of June 30, 2011, no impairment has been necessary. Non-controlling interest represents the portion of equity that we do not own in the entity that we consolidate. We account for and report our non-controlling interest in accordance with the provisions under the Consolidation Topic of the FASB ASC 810. The Company has a 51% equity interest in The Comet Clothing Company, LLC, hence a 49% non-controlling interest. The Company has a controlling interest because of its management of The Comet Clothing Company, LLC. As a result of our Asset Purchase Agreement with Pro-Stars, Inc. effective December 26, 2006, Dreams received 86.5% of the Caesars Forum Shops Field of Dreams store; 89% of the Rio Hotel Field of Dreams store; 90.5% of the Smith & Wollensky Field of Dreams store; and 88.125% of the marketing venture known as "Stars Live 365". The Company records all of the revenues generated from these operations and then records a "minority interest expense" representing the limited partners' earned pro-rata share of the actual profits. Dreams will have an on-going obligation to make quarterly distributions on a pro-rata basis depending on the actual profitability of each of the three stores and Stars Live 365.Z:.,I+]"%CBQNPK25((
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end
Condensed Consolidated Balance Sheets (Parenthetical)
Â
Â
Preferred stock, shares authorized
10,000,000
10,000,000
Preferred stock, shares issued
0
0
Preferred stock, shares outstanding
0
0
Common stock, no par value
Common stock, shares authorized
100,000,000
100,000,000
Common stock, shares issued
44,632,987
44,107,464
Common stock, shares outstanding
44,632,987
44,107,464
Treasury stock, shares issued
38,400
38,400
In Thousands, except Share data3 Months Ended
6 Months Ended
Revenues:
Â
Â
Â
Â
Manufacturing/Distribution
$ 1,849
$ 1,819
$ 5,131
$ 4,661
Retail
16,741
12,455
36,966
25,966
Other - Fees
53
92
80
283
Total Revenues
18,643
14,366
42,177
30,910
Expenses:
Â
Â
Â
Â
Cost of sales-mfg/distribution
1,076
1,022
2,962
2,740
Cost of sales-retail
9,213
6,801
20,196
14,136
Operating expenses
10,254
7,641
22,289
15,777
Depreciation and amortization
674
451
1,312
900
Total Expenses
21,217
15,915
46,759
33,553
(Loss) from operations
(2,574)
(1,549)
(4,582)
(2,643)
Interest (expense), net
(198)
(414)
(322)
(759)
(Loss) before income taxes
(2,772)
(1,963)
(4,904)
(3,402)
Other income
71
Â
71
Â
Provision for income tax benefit
1,049
785
1,907
1,362
Net (loss)
(1,652)
(1,178)
(2,926)
(2,040)
Loss attributable to non controlling interest
44
Â
72
Â
Net (loss) attributable to Dreams, Inc
$ (1,608)
$ (1,178)
$ (2,854)
$ (2,040)
(Loss) per share:
Â
Â
Â
Â
Basic: (Loss) per share
$ (0.04)
$ (0.03)
$ (0.06)
$ (0.05)
Weighted average shares outstanding - Basic
44,632,604
38,267,107
44,563,624
37,955,943
Diluted: (Loss) per share
$ (0.04)
$ (0.03)
$ (0.06)
$ (0.05)
Weighted average shares outstanding - Diluted
45,088,132
39,178,628
45,107,886
38,901,624
6 Months Ended
Document And Entity Information
Â
Â
Document Type
10-Q
Â
Amendment Flag
false
Â
Document Period End Date
Jun. 30,
2011
Document Fiscal Year Focus
2011
Â
Document Fiscal Period Focus
Q2
Â
Entity Registrant Name
DREAMS INC
Â
Entity Central Index Key
0000810829
Â
Entity Filer Category
Smaller Reporting Company
Â
Current Fiscal Year End Date
--12-31
Â
Entity Common Stock, Shares Outstanding
Â
44,632,987
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6 Months Ended
Acquisition
Â
Acquisition
7.
Acquisitions
6 Months Ended
Subsequent Events
Â
Subsequent Events
12.
Subsequent Events
6 Months Ended
Business Segment Information
Â
Business Segment Information
3.
Business Segment Information
Manufacturing/
Distribution
Retail
Operations
Total
$
7,175
$
36,966
$
44,141
(2,044
)
—
(2,044
)
(759
)
(1,708
)
(2,467
)
$
19,019
41,253
60,271
$
6,208
$
25,966
$
32,174
(1,547
)
—
(1,547
)
(444
)
(689
)
(1,133
)
$
18,459
$
30,828
$
49,287
Six-Months Ended
6/30/11
6/30/10
$
44,141
$
32,174
80
283
(2,044
)
(1,547
)
$
42,177
$
30,910
$
(2,467
)
$
(1,133
)
(2,115
)
(1,510
)
322
759
$
(4,904
)
$
(3,402
)
Manufacturing/
Distribution
Retail
Operations
Total
$
2,679
$
16,741
$
19,420
(830
)
—
(830
)
(592
)
(1,166
)
(1,758
)
$
19,019
$
41,253
$
60,271
$
2,648
$
12,455
$
15,103
(829
)
—
(829
)
(358
)
(332
)
(690
)
$
18,459
$
30,828
$
49,287
Three-Months Ended
6/30/11
6/30/10
$
19,420
$
15,103
53
92
(830
)
(829
)
$
18,643
$
14,366
(1,758
)
(690
)
(816
)
(859
)
198
414
$
(2,772
)
$
(1,963
)
*
These are "unallocated" costs and expenses that have not been allocated to the reportable segments. Some examples of these unallocated overhead costs which are consistent with the Company's internal accounting policies are executive salaries and benefits; corporate office occupancy costs; professional fees, bank charges; certain insurance policy premiums, public relations/investor relations expenses.
6 Months Ended
New Accounting Pronouncements
Â
New Accounting Pronouncements
9.
New Accounting Pronouncements
6 Months Ended
Line Of Credit
Â
Line Of Credit
10.
Line of Credit
6 Months Ended
Commitments And Contingencies
Â
Commitments And Contingencies
8.
Commitments and Contingencies
6 Months Ended
Management's Representations
Â
Management's Representations
1.
Management's Representations
6 Months Ended
Note Receivable
Â
Note Receivable
4.
Note Receivable
6 Months Ended
Inventories
Â
Inventories
5.
Inventories
June 30,
2011
December 31,
2010
$
396
$
397
86
66
34,664
32,146
$
35,146
$
32,609
6 Months Ended
Goodwill And Unamortized Intangible Assets
Â
Goodwill And Unamortized Intangible Assets
6.
Goodwill and Unamortized Intangible Assets
6 Months Ended
Description Of Business And Summary Of Significant Accounting Policies
Â
Description Of Business And Summary Of Significant Accounting Policies
2.
Description of Business and Summary of Significant Accounting Policies
Options
Exercisable Price
Weighted Av. Exercise Price
1,077,929
360,001
$ .60 - 2.35
$
2.29
(46,746
)
.41 - 2.75
1.21
—
—
—
(525,523
)
$ .41 - .60
$
.55
865,661
$ .41 - 2.75
$
1.21
Outstanding
Exerciseable
Outstanding
Options
Remaining
Contractual
Life
WA
Outstanding
Exercise Price
Vested
Options
WA Vested
Exercise
Price
518,661
1.0
$
.45
518,661
$
.45
347,000
4.8
$
2.35
69,000
$
2.35
865,661
2.5
$
1.21
587,661
$
.67
6 Months Ended
Non-Controlling Interest
Â
Non-Controlling Interest
11.
Non-Controlling Interest