Description Of Business And Summary Of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Description Of Business And Summary Of Significant Accounting Policies

Description Of Business And Summary Of Significant Accounting Policies

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 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:

	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
June 30, 2011		865,661		$ .41 - 2.75	$	1.21

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

	Outstanding				Exerciseable
Range	Outstanding Options		Remaining Contractual Life		WA Outstanding Exercise Price		Vested Options		WA Vested Exercise Price
$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
$.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 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.